What You Need To Know About Twitter's $809.5M Settlement Agreement

Twitter, Inc. TWTR announced Monday a settlement agreement relating to a class action lawsuit pending from 2016.

What Happened: Twitter said it has entered into a binding agreement to settle the consolidated class action lawsuit commenced in 2016 in the U.S. District Court for the Northern District of California.

The company said it will pay $809.5 million to settle the claims, alleging violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934.

In the lawsuit, investors alleged that Twitter hid its slowing growth even as its high-profile executives, including co-founders Evan Williams and Jack Dorsey, profited hugely from insider selling.

Twitter was accused of tracking daily active users as the main indicator of user engagement but did not disclose it to investors. In the process, the company managed to keep its investors in the dark about its plateauing or falling user base.

Subsequently, the company announced beginning in the fourth quarter of 2018 that it will use monetizable daily active users as a measure of its user base.

"The proposed settlement resolves all claims asserted against Twitter and the other named defendants without any admission, concession or finding of any fault, liability or wrongdoing by the Company or any defendant," the company said.

Related Link: Why Twitter And TikTok Were Big Social Media Winners In Q2

Twitter said it intends to use cash on hand to pay the settlement amount. The payment is expected to be made in the fourth quarter and the company expects to record a charge for the settlement during the third quarter.

The final settlement agreement will be subject to approval by the court, Twitter said.

Why It's Important: The settlement agreement is likely to remove a legal overhang and allow the company to stay focused on growth.

Twitter benefited significantly during the COVID-19 pandemic and saw a rapid increase in user growth in 2020. The momentum has continued into 2021. 

Apart from external factors, the company is proactively pursuing growth by announcing new features and safeguards to attract more users.

TWTR Price Action: Twitter shares were slipping 3.67% to $60.18 midday Monday. 

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