Shareholder Sues Block Over ‘Misleading’ Cash App Disclosures

News | May 30, 2024 By:

On Thursday, May 16, 2024, Jody Watt filed a lawsuit against Block Inc. and several of its directors, claiming the company provided misleading disclosures to shareholders ahead of its upcoming annual meeting.

In the complaint filed in the United States District Court for the Southern District of California, Watt alleges that Block’s proxy statement and annual report contained material omissions and misrepresentations about the effectiveness of its internal controls and oversight of risks associated with its popular Cash App service.

Cash App has grown rapidly in recent years to become a major profit driver for Block, allowing users to transfer money between each other as well as buy and sell cryptocurrencies like bitcoin. However, the lawsuit claims Block did not properly vet the identity of Cash App customers, resulting in sanctioned entities and operations engaged in illegal activities like data theft and offshore gambling from accessing the platform.

The complaint further states that Block failed to provide shareholders with adequate details about the unexpected mid-year resignation of director Larry Summers from its audit committee. Summers stepped down from the board in February 2024 citing time commitments, but the lawsuit suggests he may have disagreed with management on internal control issues related to Cash App compliance.

Within a week of Summers’ departure, it emerged that multiple financial regulators had launched investigations into allegations that Block lacked proper safeguards to prevent Cash App from facilitating money laundering and other unlawful practices. The proxy statement omitted this potentially crucial context surrounding Summers’ exit, according to the plaintiff.

Watt is asking the court to compel additional disclosures from Block ahead of its June 18 annual meeting and postpone any shareholder vote until investors are fully informed. The lawsuit maintains shareholders have not received a clear picture of the board’s oversight of risk management and compensation incentives in light of the ongoing regulatory scrutiny of Cash App.

In its defense, Block emphasizes that it maintains robust policies and procedures to identify, assess, and handle risks. The company also points to its annual audit signed off by an outside accounting firm as evidence that internal controls were deemed effective. However, the allegations raised in the lawsuit suggest those safeguards may require more rigorous examination.

For the roughly 55 million active Cash App users and Block shareholders alike, the court case adds an element of uncertainty. Its outcome could shape oversight of the tech giant’s expansion into lucrative but regulated domains involving cryptocurrency and money transmission.

Please contact BlockTribune for access to a copy of this filing.