Shares of AppLovin sank 20% on Thursday, their steepest drop on record, as another short-selling firm raised concerns about the company’s digital ad technology and claimed that it’s violating app store rules.

AppLovin tumbled $65.92 to close at $261.70. The stock soared more than 700% last year, the biggest gain among U.S. tech companies, due to enthusiasm surrounding AppLovin’s artificial intelligence technology and the growth it was spurring in its ad business.

But Muddy Waters Research on Thursday became the third short-selling firm to publish a report meant to raise significant investor skepticism. The stock is down 19% in 2025 after Thursday’s drop.

The report said that AppLovin’s ad tactics “systematically” violate app stores’ terms of service by “impermissibly extracting proprietary IDs from Meta, Snap, TikTok, Reddit, Google, and others.” In so doing, AppLovin is funneling targeted ads to users without their consent, Muddy Waters said.

“If APP is not deplatformed, logically, numerous competitors will start copying APP’s techniques because there is little technology involved,” the firm wrote.

Last month, Fuzzy Panda Research was one of two firms, along with short-seller Culper Research, that critiqued AppLovin’s AXON software, which drove its earnings growth and stock surge. The shares dropped 12% on Feb. 26, the day of the short reports. Earlier in February, AppLovin reported a revenue and earnings beat.

After the short reports were published last month, AppLovin CEO Adam Foroughi wrote a blog post, defending his company’s technology and practices, and taking aim at the short sellers trying to profit from AppLovin’s decline.

An AppLovin spokesperson didn’t provide a comment on Thursday, referring CNBC to Foroughi’s post.

“It’s disappointing that a few nefarious short-sellers are making false and misleading claims aimed at undermining our success, and driving down our stock price for their own financial gain, rather than acknowledging the sophisticated AI models our team has built to enhance advertising for our partners,” Foroughi wrote. “It’s also noteworthy that the short reports emerged after our earnings report, where we would be in a period of being unable to respond with financial performance.”

Earlier this month, Fuzzy Panda penned a letter to the S&P 500 inclusion committee reiterating its claims of fraudulent ad tactics and alleging that AppLovin didn’t meet the committee’s “gold standard.” The firm encouraged the committee to keep AppLovin out of the S&P 500.

“AppLovin’s recent revenue growth has been based in data theft, revenue fraud, and the exploitation of our country’s laws protecting children,” the firm wrote to the S&P committee.

One of Muddy Waters’ central claims is that e-commerce advertisers are bailing on AppLovin. The firm said that it analyzed 776 advertisers active early in the first quarter and noted that the churn rate was about 23%, while Foroughi “reportedly claims there has been no churn,” according to the report.

Muddy Waters said it conducted the churn analysis by looking at e-commerce websites that, on Jan. 3, had AppLovin’s AXON pixel. The firm then re-ran those checks from March 24-26, and said it found 21 sites with “broken links,” and another 171 that no longer contained the pixel.

The 23% “churn rate is based only on those customers who removed the pixel,” the firm wrote.

A representative for Muddy Waters declined to comment.

WATCH: AppLovin shares down after Muddy Waters short

One of the most popular acronyms in Silicon Valley these days is SPV.

It stands for special purpose vehicle. In tech startup land, it’s a type of investment fund that typically involves concentrating all of its assets in one company. SPVs have blown up in recent years as investors clamor to get a piece of hot startups with valuations often in the tens of billions of dollars.

But buyer beware. Investors are warning of hidden fees, unclear rules about ownership, and marketing that’s driven by FOMO, or the fear of missing out.

Traditional venture capital funds spread risk across a portfolio of startups, with the understanding that most bets will fail and that the one or two successes will pay back the fund several times over. In an SPV, a fund manager usually raises capital for a single deal and recruits a syndicate of smaller investors to join for an added fee that covers management and other costs.

Some established venture firms use the vehicles to offer their limited partners — endowments, pension funds or high-net worth investors — a larger slice of a single startup. That allows the firm to write a bigger check and capture more ownership than would be possible using their existing funds.

“In venture capital, a few winners deliver all the results,” said Sandeep Dahiya, professor of finance at Georgetown’s McDonough School of Business. “SPVs are a single shot — if it works out, good. If not, there’s no second bite of the apple.”

Six years ago, SPVs accounted for just 7% of private shares traded on Forge Global, a marketplace for private company stock. That number has since ballooned to 64%.

SPVs have been a cornerstone in major artificial intelligence deals of the past year, including OpenAI, Anthropic and CoreWeave, set to go public later this week. Magnetar, CoreWeave’s largest institutional investor, has used SPVs to help build its stake in the AI infrastructure company.

“We’re seeing a lot of fundraising through SPVs in artificial intelligence names — it’s a way to raise a large amount of money in a short mount of time,” Howe Ng, head of data and investment solutions at Forge Global, told CNBC. “The hotter the name, the higher the fee.”

AngelList, which also offers access to SPVs and secondary shares, noted a similar flurry. CEO Avlok Kohli said his platform has seen a 65% increase in SPV flows in the past year, in part because the venture market has started to recover after a gloomy few years when the story was all about inflation and higher interest rates.

Kohli said he’s seen some shady behavior in the SPV market. When he personally invested in a startup through a syndicate six years ago, he said there were multiple layers of fees and a lack of transparency.

“A bunch of things weren’t disclosed to me,” he said. “It was clear the person I invested behind had no idea what was going on at the company, and that that experience as a [limited partner] is seared into my brain. I would rather not have anyone else go through that.”

Kohli said AngelList often turns down SPVs that it can’t verify. In extreme cases, Kohli said, funds will pool together money to invest in a startup with no guarantee that they’ll actually own the stock. He called such behavior fraud, and said it takes place “in every bull cycle.”

Hans Swildens, CEO and Founder of Industry Ventures, which focuses on secondary market investments, said access to information is a big challenge and transaction data is spotty. He estimated only 10% of secondary deals are made public.

“Most of the time, counterparties don’t want to disclose what they buy or sell,” he said. “They’re not writing a press release.”

The law requires that SPVs disclose their fees. But how much an SPV investor ultimately ends up paying can vary depending on the holding period of the asset. The longer the waiting period until an acquisition or an IPO, the bigger the return needs to be to make up for those fees.

Swildens said the SPV explosion has parallels to the peak of the dot-com bubble, when retail investors put cash into hyped-up internet companies.

“It’s typically a bad sign in our market, when retail shows up,” he said. “If retail keeps coming in and over the next year or two, and makes up a larger part of this market, I would say that that’s probably a good signal for institutional investors to take some risk off and sell.”

WATCH: Venture capital veterans talk AI hype cycle

Meta on Thursday debuted the Facebook Friends tab, a new feature that’s part of CEO Mark Zuckerberg’s pitch to revive the original spirit of his social networking app, or “OG Facebook” as he called it.

“The new Friends tab is a throwback to OG Facebook when you only saw friends’ status updates,”  Zuckerberg said in a post about the feature. “More OG Facebook coming soon “

The Facebook Friends tab is designed to show users the latest posts from their friends instead of “recommended content,” the company said in a blog post. The friend-related content include stories, reels, posts, birthdays and friend requests.

The new tab marks a departure from the core Facebook feed, which is still the primary way users find and interact with content on the service. Meta has been increasingly using artificial intelligence to recommend content from across the social network that is tailored to users’ interests.

Zuckerberg hinted about “OG Facebook” during a January call with analysts for the company’s fourth-quarter earnings, saying he was “excited this year to get back to some OG Facebook.”

While “a lot of people use Facebook every day,” Zuckerberg in January said he believed that there are “a lot of opportunities” to make the app “more culturally influential than it is today.” Part of that effort includes a focus to “get back to how Facebook was originally used back in the day.”

Zuckerberg echoed that sentiment in his Thursday post, which showed a short video of the new feature and how it compared to the experience of using the social network in 2008 from a laptop.

Meta said that the new Friends tab is now available in the U.S. and Canada, but did not say when it would debut in other countries.

WATCH: A look at Facebook Marketplace