Shareholder Sues Block Inc. Directors Over Cash App Compliance Failures
On Thursday, April 24, 2025, James Kelly filed a shareholder derivative complaint in the US District Court for the Northern District of California against several current and former officers and directors of Block Inc., a Delaware-based financial services company formerly known as Square Inc.
The lawsuit, filed on behalf of Block, names co-founder Jack Dorsey, Chief Operating Officer Amrita Ahuja, and directors Roelof Botha, Amy Brooks, Shawn Carter, Paul Deighton, Randy Garutti, James McKelvey, Mary Meeker, Anna Patterson, Sharon Rothstein, Lawrence Summers, and David Viniar as defendants, with Block listed as the nominal defendant. The case seeks damages for alleged breaches of fiduciary duties, violations of federal securities laws, and insider trading spanning from February 2019 to the present.
The complaint centers on Block’s Cash App, a mobile payment platform launched in 2013 that allows users to transfer money, invest in stocks and cryptocurrency like Bitcoin, and access other financial services. According to the filing, Cash App’s growth was driven by a “frictionless onboarding” process requiring only a phone number or email and a zip code, which the plaintiff claims facilitated fraud, money laundering, and other illicit activities. The lawsuit alleges that the defendants failed to implement adequate compliance measures, prioritizing user growth over regulatory obligations. It cites internal records showing the board was aware of compliance deficiencies but took no corrective action, leading to widespread fraudulent accounts, with estimates suggesting 40% to 75% of Cash App accounts were fake or duplicative.
The filing highlights regulatory actions against Block, including a January 16, 2025, consent order from the Consumer Financial Protection Bureau (CFPB), which found that Block violated the Consumer Financial Protection Act by failing to address fraud, resolve disputes, and provide adequate customer service. Additionally, on April 10, 2025, the New York Department of Financial Services (NYDFS) fined Block for deficiencies in its Know Your Customer practices, transaction monitoring, and suspicious activity reporting from 2018 to at least 2021. These regulatory penalties totaled $295 million, according to the complaint.
The lawsuit further alleges that the defendants made false statements to shareholders about Block’s compliance efforts. For instance, in February 2022, Dorsey claimed the company had limits to manage fraud, while the plaintiff asserts that Block was minimizing compliance to inflate user metrics. The complaint references a March 23, 2023, Hindenburg Research report accusing Block of overstating user counts and enabling fraud, as well as February and May 2024 NBC News reports citing whistleblower claims of compliance lapses known to Block’s leadership.
Additionally, the complaint accuses Dorsey and McKelvey of insider trading, alleging they sold over $1 billion in Block stock at inflated prices while aware of material non-public information about compliance failures. It also claims the defendants issued misleading proxy statements, violating Sections 10(b), 14(a), and 29(b) of the Securities Exchange Act, by touting risk management oversight while concealing compliance issues. The plaintiff seeks to void contracts tied to these violations and impose a constructive trust on profits from alleged insider trading.
The lawsuit argues that a demand on Block’s board to pursue the claims would be futile due to the defendants’ lack of independence and potential liability. It details relationships, such as Dorsey’s financial partnerships with Carter, including a $0.7 million contribution to the Bitcoin Academy, and Meeker’s ties to Dorsey and McKelvey through a 2011 Kleiner Perkins investment in Block. The complaint also notes Block’s acquisition of Afterpay in 2022, alleging director Anthony Eisen’s lack of independence due to his financial stake in the deal.
Kelly, a Block shareholder, demands a jury trial and seeks damages, corporate governance reforms, and legal fees.
Please contact BlockTribune for access to a copy of this filing.
