Short seller Muddy Waters says this fintech firm could be a ‘fraud’

on Nov 16, 2022
  • Muddy Waters Research reveals a short position in dLocal Ltd.
  • It says there are discrepancies in dLocal's disclosures to investors.
  • Shares of the fintech company were cut in half on Wednesday.

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Shares of dLocal Ltd (NASDAQ: DLO) were cut nearly in half on Wednesday after Muddy Waters revealed a short position in the Uruguayan financial technology company.

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Discrepancies in disclosures to investors

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According to the due diligence-based investment firm, it found significant discrepancies in the fintech’s disclosures to investors that possibly point to a “fraud”. The report reads:

DLO has repeated disclosures about its TPV and accounts receivable that flatly contradict one another. There’s also a contradictory discrepancy between two key subsidiaries’ accounts payable and accounts receivable.

dLocal went public in June of 2021. By the end of the year, insiders had already sold $1.0 billion worth of its stock, which also doesn’t sit well with Carson Block – the Founder of Muddy Waters Research.

Earlier this week, dLocal reported weaker-than-expected earnings for its fiscal third quarter. For the year, the stock is now down nearly 70%.

Other red flags cited for the short position

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The report talks of a $3.30 million deficit in dLocal’s ability to fund its dividend. Even more than payments volume, Muddy Waters is concerned about its take rates.

Approximately half of dLocal’s revenue and take rates are comprised of foreign exchange gains and fees. We estimate that DLO’s foreign exchange gains are roughly double, if not close to triple what they should be.

Other red flags cited for the short position include an unnecessary complexity in dLocal’s operational structure.

The payments company that is backed by notable investors like Tiger Global and General Atlantic is yet to respond to these allegations.


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