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Fastly Sued by Investors for Failing to Disclose TikTok Ties

Aug. 27, 2020, 7:50 PM

Cloud computing company Fastly Inc. failed to disclose that controversial TikTok owner ByteDance Ltd. was its largest customer in the second quarter of 2020, leading to a drop in stock prices after it revealed the news, according to an investor suit filed in San Francisco federal court Thursday.

Fastly is the creator of an “edge cloud platform” that provides cloud internet infrastructure services. On an Aug. 5 earnings call, Fastly revealed that TikTok was responsible for 12% of its revenue in the second quarter. According to the complaint, the Q2 earnings call also suggested that ByteDance was a significant Fastly customer in the first quarter of 2020.

“This news shocked the market, as TikTok had been under heavy scrutiny by U.S. officials and others since at least late 2019 due to fears that the data it collects from its users could be accessed by the Chinese government,” the complaint says. It also notes that President Trump had announced a plan to ban the popular app in the U.S. over national security concerns less than a week before the call.

Fastly’s stock price fell from $108.92 to close at $89.64 on Aug. 6, the same day President Trump issued an executive order prohibiting American companies from doing business with ByteDance. After the order, the stock price dropped again to close at $79.33 on Aug. 7.

The complaint alleges that Fastly, CEO Joshua Bixby, and CFO Adriel Lares violated securities laws by making false or misleading statements about the business without disclosing that ByteDance was its main customer, and “concealed a material risk that Fastly’s business would be adversely impacted should any adverse actions be taken against ByteDance or TikTok by the U.S. government.”

Causes of Action: Securities Exchange Act, Rule 10b-5.

Relief: Class certification, damages, attorneys’ fees and costs.

Response: Fastly didn’t immediately respond to a request for comment.

Potential Class Size: Everyone who purchased Fastly stock between May 6—the day Fastly announced its Q1 earnings—and Aug. 5, 2020.

Attorneys: Faruqi & Faruqi LLP represents the proposed class.

The case is Betancourt v. Fastly Inc., N.D. Cal., No. 3:20-cv-06024, complaint filed 8/27/20.

To contact the reporter on this story: Blake Brittain in Washington at bbrittain@bloomberglaw.com

To contact the editors responsible for this story: Rob Tricchinelli at rtricchinelli@bloomberglaw.com; Nicholas Datlowe at ndatlowe@bloomberglaw.com

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