Twitter and the (Alleged) $10 Million Tweet

by Pillsbury’s Internet & Social Media Law Blog
Contact

As social media companies and businesses rely more heavily on their social media platforms to make important company announcements, state law claims asserting negligent misrepresentation or failure to adequately disclose information relating to announcements made on these outlets are bound to arise.

For instance, Pope Trading LLC recently filed a complaint in California Superior Court against Twitter Inc. alleging negligent misrepresentation based on Twitter’s early release of its financial results for the first quarter of the 2015 fiscal year. Everything that gives rise to this claim appears to take place within a seven-hour time period on April 28, 2015. The allegations state that Twitter tweeted the following on its handle at 10:08 a.m. EST:

Twitter Q1’15 earnings today after market close. Listen to our call at 2pm PT via @twitterIR or investor.twitterinc.com. #TWTRearnings

Pope Trading alleges that it relied upon this announcement in purchasing almost $10 million of Twitter stock after the tweet was made on April 28, 2015, with the plan to sell that stock later that same day prior to the market close. However, Shareholder.com Inc., the NASDAQ-owned company hired by Twitter to handle the release of its quarterly and annual financial reports, prematurely released Twitter’s financial results on Twitter’s investor relations portal at 3:07 pm that day. Selerity Inc., a real-time content analytics and media company, discovered this information and sent it to its Wall Street clients before tweeting the information to the public at large. The financial results reported failed to meet Wall Street’s expectations. The allegations state that, as a result of the early release of the results, the price of Twitter’s shares dropped significantly by the time market closed and Pope Trading sustained losses.

Much of the claim rests on the allegation that Twitter did not have reasonable controls in place to prevent the early disclosure of its financial results and knew, or should have known, that such early disclosure would take place. As an example, Pope Trading cites the fact that Shareholder.com has made at least one other inadvertent early disclosure of financial information and also cites instances where other companies’ financial results were prematurely released for various reasons.

This claim raises the question as to what steps Twitter should have taken prior to making its tweet. If Twitter had verified the timing of the disclosure with Shareholder.com prior to its tweet at 10:08 a.m., it is not clear how Twitter knew or should have known that the early disclosure would occur, or how Twitter would not have had a reasonable ground to believe that its tweet was true when made. Perhaps Twitter’s procedure was to simply instruct Shareholder.com as to the proper timing of its releases prior to, or concurrently with, the submission of its results to Shareholder.com. In that case, then what other steps, if any, should Twitter have reasonably taken to ensure that its instructions were properly carried out? It would appear that Pope Trading is suggesting here that Twitter should have had a policy of not even submitting the results to Shareholder.com until after the market closed, however, that type of control would not seem practical.

There are also questions as to causation presented here that the parties will likely wrestle with. For example, was it the timing of the actual release of the financial results that really caused the drop in Twitter’s stock and Pope Trading’s alleged resulting damages, or was it the content (i.e. Twitter’s poor financial performance)? Presumably, if Twitter had instead reported blockbuster numbers then its stock price would have likely risen in value, even if the results were released prematurely. Perhaps Pope Trading will argue that it would not have made the purchase at all in the absence of the tweet, in which case it still would have had the $10 million in cash that it originally paid for the shares.

Although Pope Trading alleges that they relied upon the tweet in purchasing the shares, Pope Trading’s claim also appears to have some attributes akin to a “holder’s action” for negligent misrepresentation. Pope Trading might argue that, as of 3:07 p.m. (immediately before the results were prematurely made public) they had been forbearing from selling their acquired shares, in continued reliance upon the tweet (i.e. they had been wrongfully induced to hold the shares through 3:07 p.m.), and although they had not yet pulled the trigger, they still intended to sell those shares later in the trading day prior to the market close. Although some courts in other jurisdictions might be concerned that such a claim presents an undue risk for potential speculative, frivolous lawsuits (i.e. from other Twitter shareholders who might conjure up claims in hindsight that they, too, intended to sell prior to the market close that day), given the California Supreme Court’s decision in Small v. Fritz Companies, Inc., 30 Cal.4th 167 (2003), which rejected similar policy-based arguments, Pope Trading selected a relatively receptive forum by suing in California state court. It will be interesting to see how the parties and the court address issues of causation and damages in future filings in this case.

In any event, putting aside the merits of this particular claim, the lesson learned is to always be careful about what information is disseminated by your company on its social media accounts and be prepared to show, if necessary, that the company had reasonable grounds to believe the veracity of any representations made through such outlets. Having procedures in place that document the steps that the company has taken prior to posting and tweeting, such as fact-checking and verification of relevant information, may help prevent and avoid or minimize claims based on such posts and tweets. Although certainly not a new lesson, this case is yet another illustration that as the public at large increasingly relies upon what companies state on social media, companies are at an increased risk of claims alleging negligent representation based on such statements. Public companies, especially those headquartered in or with other significant ties to California, should be particularly vigilant where such information may be potentially market moving or otherwise relied upon by investors.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Pillsbury’s Internet & Social Media Law Blog | Attorney Advertising

Written by:

Pillsbury’s Internet & Social Media Law Blog
Contact
more
less

Pillsbury’s Internet & Social Media Law Blog on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
Sign up using*

Already signed up? Log in here

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Custom Email Digest
Privacy Policy (Updated: October 8, 2015):
hide

JD Supra provides users with access to its legal industry publishing services (the "Service") through its website (the "Website") as well as through other sources. Our policies with regard to data collection and use of personal information of users of the Service, regardless of the manner in which users access the Service, and visitors to the Website are set forth in this statement ("Policy"). By using the Service, you signify your acceptance of this Policy.

Information Collection and Use by JD Supra

JD Supra collects users' names, companies, titles, e-mail address and industry. JD Supra also tracks the pages that users visit, logs IP addresses and aggregates non-personally identifiable user data and browser type. This data is gathered using cookies and other technologies.

The information and data collected is used to authenticate users and to send notifications relating to the Service, including email alerts to which users have subscribed; to manage the Service and Website, to improve the Service and to customize the user's experience. This information is also provided to the authors of the content to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

JD Supra does not sell, rent or otherwise provide your details to third parties, other than to the authors of the content on JD Supra.

If you prefer not to enable cookies, you may change your browser settings to disable cookies; however, please note that rejecting cookies while visiting the Website may result in certain parts of the Website not operating correctly or as efficiently as if cookies were allowed.

Email Choice/Opt-out

Users who opt in to receive emails may choose to no longer receive e-mail updates and newsletters by selecting the "opt-out of future email" option in the email they receive from JD Supra or in their JD Supra account management screen.

Security

JD Supra takes reasonable precautions to insure that user information is kept private. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. However, please note that no method of transmitting or storing data is completely secure and we cannot guarantee the security of user information. Unauthorized entry or use, hardware or software failure, and other factors may compromise the security of user information at any time.

If you have reason to believe that your interaction with us is no longer secure, you must immediately notify us of the problem by contacting us at info@jdsupra.com. In the unlikely event that we believe that the security of your user information in our possession or control may have been compromised, we may seek to notify you of that development and, if so, will endeavor to do so as promptly as practicable under the circumstances.

Sharing and Disclosure of Information JD Supra Collects

Except as otherwise described in this privacy statement, JD Supra will not disclose personal information to any third party unless we believe that disclosure is necessary to: (1) comply with applicable laws; (2) respond to governmental inquiries or requests; (3) comply with valid legal process; (4) protect the rights, privacy, safety or property of JD Supra, users of the Service, Website visitors or the public; (5) permit us to pursue available remedies or limit the damages that we may sustain; and (6) enforce our Terms & Conditions of Use.

In the event there is a change in the corporate structure of JD Supra such as, but not limited to, merger, consolidation, sale, liquidation or transfer of substantial assets, JD Supra may, in its sole discretion, transfer, sell or assign information collected on and through the Service to one or more affiliated or unaffiliated third parties.

Links to Other Websites

This Website and the Service may contain links to other websites. The operator of such other websites may collect information about you, including through cookies or other technologies. If you are using the Service through the Website and link to another site, you will leave the Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We shall have no responsibility or liability for your visitation to, and the data collection and use practices of, such other sites. This Policy applies solely to the information collected in connection with your use of this Website and does not apply to any practices conducted offline or in connection with any other websites.

Changes in Our Privacy Policy

We reserve the right to change this Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our privacy policy will become effective upon posting of the revised policy on the Website. By continuing to use the Service or Website following such changes, you will be deemed to have agreed to such changes. If you do not agree with the terms of this Policy, as it may be amended from time to time, in whole or part, please do not continue using the Service or the Website.

Contacting JD Supra

If you have any questions about this privacy statement, the practices of this site, your dealings with this Web site, or if you would like to change any of the information you have provided to us, please contact us at: info@jdsupra.com.

- hide
*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.