Muddy Waters’ Block shorts payments firm dLocal; shares halve in value

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Hedge fund Muddy Waters is shorting Uruguay-based payment processing firm dLocal, the investment firm’s CEO and owner Carson Block told a financial conference on Wednesday, causing shares in the company to lose half their value.

Though dLocal said a report published by Muddy Waters contained numerous inaccuracies, its U.S.-listed shares plunged 50.7% to $10.46 following the news.

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Block told attendees at the Sohn Conference in London that he entered his short position because of the many “red flags” he found in the most recent accounts which were last filed in 2020 by dLocal Ltd, which says it connects global merchants with emerging market users through payments.

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“If these were serious people who really wanted to run a payments company for the long term, they wouldn’t have sold a billion dollars worth of the stock in the first five months of the company going public,” said Block in an investor presentation.

DLocal in a statement said the Muddy Waters report “contains numerous inaccurate statements, groundless claims and speculation.” The company added it will rebut the allegations in the appropriate forum in due course.

The report released by Muddy Waters Research on its website alleges there is a $3.3 million deficit in DLO’s ability to fund its dividend.

It also says in the company’s Malta subsidiary there is a $4.1 million deficit in the company’s ability to fund its cash uses.

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“A spate of recent high-level departures brings to mind the idiom, ‘rats fleeing a sinking ship,’” says the report.

Block’s most recent research report came out in July 2022 was in energy company Hannon Armstrong Sustainable Infrastructure Capital HASI.N.

The move comes as Muddy Waters’ founder Carson Block is being probed by the Justice Department as part of a wide-ranging investigation into short-sellers and hedge funds focused on suspected coordinated manipulative trading. (Reporting by Nell Mackenzie; Additional reporting by Manya Saini in Bengaluru and Peter Frontini in Sao Paulo; Editing by Tomasz Janowski and Josie Kao)