The feds are looking into whether Snap Inc. misled investors ahead of its $3.4 billion deal to go public last year by failing to flag the threat that Instagram posed to its business.
Both the US Justice Department and the Securities and Exchange Commission have subpoenaed Snapchat’s parent company for information about its March 2017 initial public offering, the LA-based tech firm said Wednesday.
“While we do not have complete visibility into these investigations, our understanding is that the DOJ is likely focused on IPO disclosures relating to competition from Instagram,” a Snap spokesperson told The Post.
”We intend to continue to cooperate with these regulators on their subpoenas and requests for information,” Snap added.
News of the previously unreported probes sent Snap’s stock down nearly 5 percent at Wednesday’s open, though it later rebounded and is trading down 1.3 percent in the afternoon, at $6.61.

Snapchat has posted disappointing user growth since its IPO and has seen its shares tumble from its initial price of $17 all the way to $6.71 at Tuesday’s close.
The probes follow a shareholder lawsuit that alleges Snap misled the public about Instagram’s threat. Snap has called the suit “meritless” and said its pre-IPO disclosures were “accurate and complete.”
Snap acknowledged the probes after the US government made a sealed filing in the shareholder lawsuit last Wednesday.
The complaint, filed in May 2017 in US District Court in Los Angeles, also alleges that Snap failed to disclose a sealed lawsuit brought before the IPO in which a former employee alleged the company had misrepresented some user metrics.
While Snapchat had been telling advertisers it was logging more than 100 million daily active users, even an “exaggerated account” of the numbers from a third-party monitor peaked at just 97 million, according to the suit.
In response, Snapchat’s lawyers called the claim a “musty, two-year-old allegation about a minor metrics deviation.”
Snapchat, which reported 158 million daily users prior to the IPO, peaked at 191 million in this year’s first quarter and fell to 186 million in the third quarter.
Snap’s investor prospectus warned that Instagram’s new ephemeral-posting feature, Stories, copied one of Snapchat’s core elements and “may be directly competitive.”
Investors allege that Snap underplayed the risk, contending that the company should have attributed slowing user growth in late 2016 to Instagram.

With Reuters