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Twitter is being sued for ‘misleading’ investors ahead of last year’s stock decline

Former CEO Dick Costolo and current CFO Anthony Noto were also named.

Twitter Sets IPO Price Of 17-20 Dollars Justin Sullivan/Getty Images

A Twitter investor has sued the company for what she and her lawyers described as “materially false and misleading statements” made early last year ahead of Twitter’s eventual stock meltdown that carried on throughout the summer.

Former Twitter CEO Dick Costolo and current CFO Anthony Noto are named in the suit, which was filed in a Northern California District Court on Friday.

The plaintiff, Doris Shenwick, owns Twitter stock and claims that Costolo and Noto made “false statements that caused the price of Twitter common stock to be artificially inflated” during the period between its Q4 2014 and Q2 2015 earnings reports.

You can read the whole lawsuit below. But here’s the gist:

Twitter reported poor Q4 2014 user growth on Feb. 5, 2015, adding four million new users. Then Twitter executives said on its earnings call that it was confident user growth would improve and return to where it was throughout the rest of 2014 when the company added an average of 14 million users per quarter. That never happened (and never really came close to happening), as we have chronicled here, here and here. The stock, which closed at $48.01 the day after those statements were made, has dropped more than 60 percent since.

So Shenwick says Twitter’s executives were deceitful and wants them to pay.

It’s unclear how much of a case Shenwick has here. The suit mentions section 10-b of the Securities and Exchange Commission Act of 1934 which “creates liability for any misstatement or omission of a material fact, or one that investors would think was important to their decision to buy or sell the stock.”

It’s also unclear how much stock Shenwick owns, or if other plaintiffs will join the lawsuit. One of the law firms listed on the suit, Bronstein, Gewirtz & Grossman, LLC, is looking to sign up more names.

A Twitter spokesperson declined to comment citing pending litigation. Costolo did not immediately respond to a request for comment.

Update: Costolo declined to comment.

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