Twitter is finally out of trouble.
The social media company announced late Friday that it had reached a $809.5 million settlement of litigation filed against it in 2011 alleging its business model was based on false pretenses. Under the terms of the settlement, Twitter will pay $373 million to resolve all litigation against it; a further $418 million will pay back stockholders over the next four years; and a “success fee” of $45 million will be put into a trust to compensate investors.
A trade lawsuit was filed in 2011 against Twitter by shareholders who alleged the company had committed fraud in its financial reporting. Plaintiffs alleged the social media company was relying on advertisers who were inflating the value of their products to help justify its share price. That worked, however, until Facebook became a threat to Twitter’s claim to be the world’s premier social media platform. Then, when Instagram overtook it, shareholders lost confidence in Twitter and bailed on the stock.
The social media company sold a massive 61 percent stake in the company last year to private equity firms, and it was deemed by some to have made a great deal of money on the deal — as much as $10 billion.
The settlement, which is subject to final approval by the California court that is hearing the case, also gives Twitter a clean slate for its financial reporting going forward. In the following years, the company will be allowed to improve its financial statements by virtue of the settlement.
It is unclear why the company didn’t settle this case back in 2011. Spokespeople for Twitter declined to comment. The plaintiffs’ lawyers also did not immediately return requests for comment.