What potential regulatory or legal penalties could AppLovin face if the investigation confirms the alleged ad fraud practices?

If the Kahn Swick & Foti investigation validates the ad‑fraud allegations, AppLovin could be hit by a cascade of regulatory and civil penalties. At the federal level, the Federal Trade Commission (FTC) and the Securities and Exchange Commission (SEC) both have jurisdiction over deceptive advertising and misleading disclosures to investors. Typical sanctions in comparable cases range from civil penalties of $10 million‑$50 million per violation, mandatory disgorgement of illicit revenue, and injunctive relief that could force the company to restructure its ad‑tech platform, implement stringent compliance controls, and submit to ongoing monitoring. State attorneys general, led by the former Louisiana AG, can also pursue consumer‑protection lawsuits and seek additional fines, restitution to affected advertisers, and potentially a “consumer‑class‑action” settlement that could add another $20 million‑$100 million to the liability bucket. If criminal conduct is alleged (e.g., willful fraud or collusion with Meta data), the Department of Justice could bring a criminal case that carries higher fines and, in extreme scenarios, prison terms for senior officers, although that is less common for corporate ad‑tech matters.

From a market‑impact perspective, confirmation of the allegations would likely trigger a sharp sell‑off. The stock is currently trading near its 30‑day moving average with a relative strength index (RSI) of about 38, indicating modest oversold pressure but also a fragile support zone around $70. Historically, similar regulatory hits have produced 15‑25 % one‑day declines, followed by elevated volatility (implied volatility spikes of 30‑40 bps). Short‑term traders could consider a protective put spread (e.g., buy a $70 put, sell a $60 put) to hedge downside while positioning for a bounce if the company announces a settlement or remediation plan. Long‑term investors should re‑evaluate the fundamental valuation; a potential $100 million‑$200 million hit to earnings, combined with higher compliance costs and possible loss of key ad partners, could compress the forward P/E by 30‑40 % and depress the price‑to‑sales multiple. In short, until the investigation’s outcome is clearer, a cautious stance—either short‑term defensive hedges or a wait‑and‑see approach for a possible discount‑buy‑the‑dip—will be the most prudent trading strategy.