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Investment research firm Muddy Waters Capital said it is short DLocal Ltd (NASDAQ:DLO), a fast-growing payments company based in Uruguay.
DLocal shares plunged more than 25% following the report.
The company, which the short-selling firm said was spun out of a high-risk processing business, has reported strong growth and profitability “that makes it an outlier.”
“While we have found no pictures of its CEO wearing black turtlenecks, our research leads us to believe that DLO is likely a fraud. We also have concerns over its disclosures about, and controls of, client funds,” argue Muddy Waters. “DLO has repeated disclosures about its TPV and accounts receivable that flatly contradict one another. There is also a contradictory discrepancy between two key subsidiaries’ accounts payable and accounts receivable. These types of seemingly innocuous misstatements are, instead, often signs of cooked books because it can become quite a strain to keep the numbers straight once you start manipulating them.”
The firm claimed they “found a series of lies” that the company has told, along with “accounts it has altered to corroborate the lies.” The lies are said to be regarding disguising the timing of an option exercise and the source of funding for the insider option exercise.
Muddy Waters went on to state they are skeptical of DLocal’s reported TPVs, and highly skeptical of its take rates, while they also have concerns about the controls for client funds.
“DLO has one of the most extensive catalogs of governance shortcomings we can recall, creating opportunities for impropriety,” they added.
