GMR
This latest lawsuit accuses certain board members and executives of failing in their fiduciary duties.
Fallout from the inflated monthly average user (MAU) metric continues to hang over cannabis mapping website WM Technologies Inc. (NASDAQ: MAPS), which operates as Weedmaps. The company found itself in hot water when it was disclosed that the numbers it was using to tout the company’s growth were embellished.
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Weedmaps executives face another lawsuit over inflated metrics
Here’s the document in question
This document details an SEC order against WM Technology for misleading reporting of Monthly Active Users (MAU)
. Key points include:
- WM Technology became public through a June 2021 de-SPAC transaction.
- The company misreported MAU growth, which was its only consumer activity metric.
- A large percentage of reported “active” users were from pop-under advertisements, who didn’t actively engage with the site.
- Despite declining user engagement, WM Technology continued to report inflated MAU numbers.
- The company violated Sections 17(a)(2) and 17(a)(3) of the Securities Act and Sections 13(a) and 14(a) of the Exchange Act.
- WM Technology’s former CEO and CFO failed to address the issue despite being aware of declining user engagement.
- In August 2022, WM Technology disclosed the MAU calculation issue and later discontinued reporting the metric
- The company lacked proper disclosure controls to ensure consistency between internal calculations and public reporting
The document outlines the violations, the company’s conduct, and the SEC’s findings regarding WM Technology’s misleading reporting practices
Summary
1. These proceedings arise from WM Technology’s untrue and misleading reporting of “monthly active users,” or “MAU.” WM Technology is a public company that operates an online marketplace connecting cannabis users with cannabis businesses. Respondent became a public company through a June 2021 de-SPAC transaction. Until August 2022, WM Technology publicly reported only one metric that measured the strength of the consumer, or user, activity on its online marketplace: MAU, which WM Technology described as a “key operating” metric in its periodic filings with the Commission. Both during the de-SPAC transaction and after WM Technology became public, WM Technology misleadingly reported substantial and continued MAU growth and emphasized the strength and growth of its user base in its public filings and earnings calls.
2. When reporting MAU publicly, WM Technology described “monthly active users” as the number of unique users opening the WM Technology mobile app or accessing the WM Technology website during the course of a calendar month, and further explained that the number of MAU was determined by counting the total number of users that had “engaged with” the company’s website during the final calendar month of the given period. In truth, a large and increasing percentage of the users of the WM Technology site were instead persons who visited a third-party site, and who were then automatically shown the WM Technology site by way of a “pop-under” advertisement (which appeared under their browser windows). Consequently, these purportedly “active” users did not volitionally seek out the WM Technology site, and, in most instances, they took no action whatsoever on the site.
Despite the reported growth in MAU, WM Technology’s user engagement metrics were stagnant or declining. WM Technology’s former chief executive officer and its former chief financial officer were advised of the declining user trends on the WM Technology site and the fact that these non-engaging users were making up an increasingly large percentage of WM Technology’s total MAU.
They understood that only a very small percentage of users acquired by pop-under ads actually interacted with the site, and were told that WM Technology was using paid traffic, and pop-under ads specifically, to hit MAU targets. WM Technology’s former CEO and former CFO failed, however, to reasonably follow up on this accelerating trend, failed to disclose that the calculation of MAUs included an increasing percentage of non-engaging users whose only contact with the site consisted of having a pop-under ad open on their device, and negligently continued to sign WM Technology’s SEC filings and 1 The findings herein are made pursuant to Respondent’s Offer of Settlement and are not binding on any other person or entity in this or any other proceeding. 2 make public statements that reported inflated MAU numbers touting the company’s growing user base.
3. Based on the foregoing and the conduct described below, WM Technology violated Sections 17(a)(2) and 17(a)(3) of the Securities Act and Sections 13(a) and 14(a) of the Exchange Act and Rules 12b-20, 13a-1, 13a-11, 13a-13, 13a-15(a), and 14a-9 thereunder.
