Currently pending before the Superior Court of the State of California, County of Los Angeles (the “Court”) are two coordinated class actions alleging securities law violations: (1) Hsieh v. Snap Inc., No. BC669394 (Cal. Super. Ct., Cty. of Los Angeles) (“Hsieh Action”); and (2) Iuso v. Snap Inc., No. 17CIV03710 (Cal. Super. Ct., Cty. of San Mateo) (“Iuso Action”).
Plaintiffs Chenghsin D. Hsieh and Wei C. Hsieh commenced the Hsieh Action on July 25, 2017 in the Los Angeles Superior Court alleging violations of the Securities Act of 1933 (the “1933 Act” or “Securities Act”) for claims under §§11, 12(a)(2) and 15 against the Defendants. The complaint in the Hsieh Action claims that Snap’s Registration Statement and Prospectus were false because they allegedly failed to disclose the following material information relating to Snap’s financial condition: (1) Snap was experiencing slow growth in its Daily Active User rate and was being adversely affected by Instagram; (2) a purported whistleblower complaint, filed by former employee Anthony Pompliano, raised questions regarding false growth metrics used by Snap executives; and (3) Snap faced substantial liability in connection with a potential patent-infringement action by iFrame Canada Ltd. and its successors. Plaintiffs claim that when the purportedly concealed information came to light between May and July 2017, Snap’s stock price declined to nearly $14.00 per share.
On July 27, 2017, Defendants removed the Hsieh Action to the Federal Court. On August 29, 2017, the Federal Court sua sponte remanded the Hsieh Action for lack of jurisdiction.
On November 15, 2017, pursuant to the parties’ stipulation, the Court stayed the Hsieh Action pending the U.S. Supreme Court’s issuance of a decision in Cyan, Inc. v. Beaver County Employees Retirement Fund, No. 15-1439 (U.S.). On March 20, 2018, the U.S. Supreme Court issued a decision in Cyan, holding that state courts have subject matter jurisdiction over class actions under the Securities Act.
Following the issuance of the Cyan decision, Defendants moved to stay the Hsieh Action in favor of a similar but distinct action in Federal Court or, in the alternative, to dismiss due to inconvenient forum based on Snap’s forum-selection clause. The plaintiffs in the Hsieh Action opposed the motion. By order dated August 16, 2018, the Court stayed the coordinated Hsieh Action pending the resolution of the Federal Action.
On August 14, 2017, Joseph Iuso commenced the Iuso Action in San Mateo Superior Court. The Iuso Action was brought as a class action on behalf of all persons who purchased Snap common stock pursuant or traceable to the IPO and alleged only violations of §11 of the Securities Act. Moreover, unlike the Hsieh Action, the complaint in the Iuso Action focused solely on the Registration Statement’s purported misstatement of the stock-based compensation to be incurred by Snap following the IPO.
On August 17, 2017, Defendants removed the Iuso Action to the United States District Court for the Northern District of California. On August 24, 2017, Iuso moved to remand. On August 25, 2017, Defendants moved to transfer the Iuso Action to the United States District Court for the Central District of California. Iuso did not oppose transfer and on September 27, 2017, the Iuso Action was transferred to the Central District of California. On November 21, 2017, the Federal Court granted Iuso’s motion to remand the Iuso Action to San Mateo Superior Court.
On December 19, 2017, Defendants petitioned the Judicial Council of California to coordinate the Hsieh Action with the Iuso Action. On February 22, 2018, the Judicial Council granted the petition and ordered that both cases be coordinated in the Los Angeles Superior Court. The coordinated proceeding was assigned to this Court under the caption Snap Inc. Securities Cases, JCCP No. 4960 (the “JCCP Proceeding”).
On June 1, 2018, pursuant to the parties’ stipulation, the Court stayed the JCCP Proceeding pending litigation in the Delaware Court of Chancery, captioned Sciabacucchi v. Salzberg, No. 2017-0931, relating to the validity of mandatory forum-selection clauses in the Company’s certificate of incorporation with regard to Securities Act claims.
On December 19, 2018, the Delaware Court of Chancery issued its decision in Sciabacucchi, finding forum-selection clauses in certificates of incorporation to be invalid and contrary to the federal regime to the extent they sought to regulate Securities Act claims. See Sciabacucchi v. Salzberg, No. 2017-0931-JTL, 2018 Del. Ch. LEXIS 578, at *2-*4, *15 (Del. Ch. Dec. 19, 2018). The Court of Chancery’s ruling was subsequently reversed by the Delaware Supreme Court. Salzberg v. Sciabacucchi, No. 346 2019, 2020 Del. LEXIS 100, at *1 (Mar. 18, 2020).
By order dated January 17, 2019, the Court vacated the stay in the JCCP Proceeding. On February 19, 2019, Defendants filed a motion to stay the JCCP Proceeding in favor of the Federal Action. Defendants also filed a demurrer to the complaint in the coordinated Iuso Action, seeking to dismiss the lawsuit. On February 25, 2019, instead of opposing the demurrer on the merits, the plaintiff in the coordinated Iuso Action filed an amended complaint. On April 10, 2019, the Court ordered the Iuso Action and JCCP Proceeding stayed until the next status conference set for July 29, 2019, and it extended the stay at subsequent status conferences.
In September 2019, the parties in both this Action and in the Federal Action began mediation-related discussions and ultimately selected the Hon. Layn R. Phillips (Ret.) as the mediator. On September 13, 2019, the parties submitted confidential mediation statements concerning the legal and factual issues in the two actions.
On October 15, 2019, the parties participated in a full-day formal mediation conducted by the Hon. Layn R. Phillips. Following the mediation session and additional negotiations amongst all parties, the mediator advised the parties on January 17, 2020, that all parties had accepted a mediator’s proposal. The parties then entered into a Term Sheet on January 24, 2020.
The Parties continued to negotiate the detailed terms of the Settlement of this Action, and these negotiations resulted in the agreement to settle all claims of the Settlement Class against the Defendants, i.e., the Stipulation entered into on October 13, 2020. Plaintiffs’ Counsel believe that the claims asserted in the Action have merit and that the evidence developed to date in the Action supports the claims asserted therein. However, Plaintiffs’ Counsel recognize and acknowledge the expense and length of continued proceedings, trial, and appeals, and have taken into account the uncertain outcome and the risk of any litigation, especially complex actions such as this. Plaintiffs’ Counsel are also mindful of the inherent problems of proof under, as well as the defenses to, the federal securities law violations asserted in the Action, including the defenses asserted by Defendants.
Plaintiffs’ Counsel believe that the Settlement set forth in the Stipulation confers a meaningful benefit upon the Settlement Class. Plaintiffs’ Counsel have determined that the Settlement is in the best interests of the Settlement Class.
The Parties acknowledge, and each of the Settlement Class Members shall be deemed by operation of law to have acknowledged, that the foregoing waiver was separately bargained for and a key element of the Settlement.
THE COURT HAS NOT RULED AS TO WHETHER DEFENDANTS ARE LIABLE TO PLAINTIFFS OR TO THE SETTLEMENT CLASS. THE NOTICE IS NOT INTENDED TO BE AN EXPRESSION OF ANY OPINION BY THE COURT WITH RESPECT TO THE TRUTH OF THE ALLEGATIONS IN THE ACTION OR THE MERITS OF THE CLAIMS OR DEFENSES ASSERTED. THE NOTICE IS SOLELY TO ADVISE YOU OF THE PENDENCY OF THE ACTION AND PROPOSED SETTLEMENT THEREOF AND YOUR RIGHTS IN CONNECTION WITH THAT SETTLEMENT.