What do SEC investigations mean for alternative data providers and publishers?

The attitude of the SEC in investigations is of great importance.
There is debate over what the SEC investigations will lead to.

Alternative data providers directly affect the business plans of many companies. The information provided by data provider companies is used in many stages, from marketing to development. So what is the source of this data? Why is the SEC (U.S. Securities and Exchange Commission) investigating alternative data providers?

The process that started with the App Annie investigation

The SEC launched an investigation into App Annie and its founder in September of last year. The American government agency investigated how App Annie obtained and sourced alternative data. According to the SEC announcement, App Annie leveraged data it should anonymously or never use to create a commercial model. This led to an SEC investigation of the company. According to the SEC announcement, App Annie also agreed to pay more than $10 million to fix the issue.

This event caused some speculation to be produced. Discussions came to the fore, such as how alternative data companies provide this data and whether they are publicly available. Whether the data called MNPI (Material Non-Public Information) is used following the relevant regulations was discussed. It is said that investigations have been started against some other alternative data companies.

The App Annie investigation may have started a new process.

Illegal use of MNPI data

MNPI data has limited use under the law. Although alternative data providers may use this non-public information in various ways, this information must be anonymous. However, speculation suggests that these MNPI data may have been misused.

Some of these speculations come from Joseph Kim. He is currently CEO of LILA Games and part-time Managing Partner at GameMakers. Due to the duties he has carried out, he has previously collaborated with App Annie and Sensor Tower.

After the App Annie news, Kim conveyed this news and made some comments. Today, he has expanded his speculations by publishing a new article. According to Joseph Kim, the process that started with the App Annie investigation started a domino effect and confirmed his earlier predictions.

Joseph Kim Disclaimer
Joseph Kim’s explanation about App Annie and Sensor Tower.

What could happen?

Kim thinks other alternative data providers may also be in trouble as the first effect in the three potential impacts. Concerns with the use of MNPI data are likely to be widespread among alternative data provider companies. Although Joseph Kim does not name the companies and refers to them as “others,” he seems to be following some news closely. According to the author, the first impact of the three potential effects is happening now.

The second impact will be that if the aforementioned alternative data providers are found guilty, their customers will also be subject to sanctions or measures. Joseph Kim lists the points to be considered to avoid such a situation as follows:

  1. Selecting what game markets to compete in and to greenlight game projects
  2. M&A analysis
  3. Corporate resourcing and organization (e.g., Netflix deciding to build out a games division)

Joseph Kim says customers using alternative data companies in the above transactions should be cautious. The use of MNPI data in these areas is not appropriate. Although it is unknown how the customers’ responsibility will be evaluated in case of any investigation, it is useful to be careful. SEC investigations can also jump from data providers to customers.

The third impact is the possibility of using this data to include advertisers in the scope of the investigation. Advertising and in-game content companies that use MNPI data in various ways, though not directly, may also be investigated.

If SEC investigations are conducted aggressively, alternative service providers may be covered and those using relevant data.

What is your share?

Based on his speculations, Joseph Kim offers the following advice for those concerned:

  • Please do not trade using market intelligence data unless you are sure your provider is MNPI compliant.
  • If you or your company uses market intelligence for some of the applications, be sure your provider is compliant with SEC guidelines on MNPI.
  • If you are a vertically integrated game studio + ad network… well, you’ve been warned!

Let us remind you that these warnings are based on speculation. On the other hand, other data companies may encounter the same problems as App Annie. Here, the SEC’s stance during investigations is one of the most important considerations.

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