Pension fund sues Duolingo, alleges execs hid DAU slowdown
The grievance says Duolingo added friction on goal, then lied about it.
A municipal pension fund accuses Duolingo of burying dangerous information about its slowing person development.
The City of Dearborn Heights Act 345 Police & Fire Retirement System filed a securities class motion on October 7, 2026, alleging the language-learning firm and two of its high executives hid how badly an aggressive push to squeeze extra money from customers was hurting the platform’s most intently watched quantity – every day lively customers.
The grievance, filed within the US District Court for the Western District of Pennsylvania, names Duolingo, its CEO and co-founder Luis von Ahn, and its former CFO Matthew Skaruppa as defendants. It brings claims beneath Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and SEC Rule 10b-5. The class interval runs from May 2, 2025 by February 26, 2026.
At the beginning of that interval, the submitting says, Duolingo had greater than 46 million every day lively customers on its “freemium” mannequin, with about 10% paying for subscriptions. The grievance alleges the corporate flooded free customers with unskippable advertisements, pushed paying subscribers towards pricier tiers, and changed human-created classes with quickly produced AI content material of decrease high quality – all whereas telling buyers the enterprise was delivering “sustainable development.”
One function is central to the grievance. In April 2025, Duolingo changed its Hearts system – the place customers misplaced a coronary heart for unsuitable solutions – with a brand new function known as Energy. Under the previous system, free customers who carried out effectively may preserve utilizing the app for prolonged durations. Under Energy, the grievance alleges, customers misplaced power with every right reply. The higher somebody did, the quicker their session ran out. The grievance alleges the “actual, undisclosed purpose was to create friction without cost customers to try to pressure them into changing into paid subscribers.”
In its second-quarter 2025 shareholder letter, the grievance says, the corporate described Energy as “a carrot, not a stick” that was creating “a extra motivating and gamified expertise.” On the earnings name that quarter, in accordance with the grievance, the CEO mentioned Energy was rising every day lively customers, earnings, and median time spent studying. The submitting alleges these statements have been deceptive. The firm ran “1000’s” of A/B checks – experiments evaluating totally different variations of app options to see which works higher – and the grievance alleges the information confirmed the added friction was suppressing person development.
The grievance additionally factors to an April 28, 2025 inner memo the CEO posted on LinkedIn, saying the corporate would “step by step cease utilizing contractors to do work that AI can deal with” and shift to an “AI-first” mannequin. The backlash was quick. According to the grievance, customers throughout TikTok documented themselves deleting the app, typically sacrificing years-long streaks. By May 17, 2025, the submitting states, the corporate entered a “social media blackout” and wiped content material from its TikTok and Instagram accounts.
Daily lively person development fell from 49% within the first quarter to 40% within the second quarter of 2025. The grievance alleges the CEO blamed the slowdown solely on his AI memo and instructed buyers “that influence is prior to now.” According to the submitting, the true drivers have been the continuing monetization push and declining content material high quality – not simply the memo backlash.
Three disclosures type the backbone of the grievance. On November 5, 2025, Duolingo reported that third-quarter every day lively person development had fallen to 36% and introduced a pivot away from monetization towards “instructing higher.” The inventory fell 25%, or $66.28 per share, closing at $193.74, the grievance states. The submitting notes the disclosure triggered analyst downgrades and worth goal cuts from corporations together with Goldman Sachs, JPMorgan, and Wells Fargo.
On January 12, 2026, the corporate disclosed the CFO’s resignation and launched preliminary fourth-quarter every day lively person development of “roughly 30% 12 months over 12 months.” The inventory dropped 8.5%, or $14.92 per share, to shut at $161.74, in accordance with the submitting.
On February 26, 2026, Duolingo reported fourth-quarter outcomes and guided to 2026 every day lively person development of solely 20%, bookings development of 10% to 12% versus consensus estimates of 20%, and adjusted EBITDA margin of 25% in opposition to consensus of 30%. The grievance quotes the CEO admitting the outcomes “could come as a shock to some buyers” and stating the corporate “discovered that the quickest solution to enhance monetization was mainly by including friction.” The inventory fell 14%, or $16.45 per share, to shut at $101.
What the previous CFO had earlier described as “a comparatively small monetary influence from this sort of reprioritization” and “a change of small proportion” turned out, in accordance with the grievance, to have materials penalties for the corporate’s 2026 bookings, earnings, and profitability outlook.
The allegations on this grievance haven’t been examined, and no courtroom has dominated on any of the claims.
