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Investigate dLocal for alleged fraud against the Argentine State and analyze denouncing it in the US

Investigate dLocal for alleged fraud against the Argentine State and analyze denouncing it in the US

The Argentine government is conducting an investigation into dLocalthe only unicorn company in Uruguay, for alleged fraud against the Argentine Stateand is considering filing a complaint in the United States, reported Infobae and confirmed The Observer. In addition, Argentine Customs, which is carrying out the investigation, is evaluating notifying the Securities and Exchange Commission (SEC), the Wall Street regulator, and will seek to obtain information from the United States Treasury and Homeland Security Investigations on the whereabouts of at least US$ 400 million that the company allegedly “fled” abroad.

The company dLocal, which is dedicated to providing cross-border payment services that connect global merchants with emerging markets, is the only Uruguayan company that managed to reach a stock market valuation of more than US$ 1,000 million dollars, which transformed her into a unicorn. Furthermore, it is the only Uruguayan company listed on Wall Street.

In 2022, the company was accused of carrying out fraudulent activities, which led to a loss of value that in 2023 it is trying to recover. Now it is being investigated by the Argentine government due to alleged improper practices in the exchange market and sending funds abroad with the purpose of “leaking foreign currency”. Official sources estimate that these fraudulent actions would involve at least US$400 million, which would constitute a scam.

According to Infobae, the investigated maneuver is to take advantage of the exchange gap to withdraw dollars abroad with operations not reflected in the accounting. It should be noted that in its balance sheet it practically “does not have” fixed assets, and only declares rents that supposedly belong to the “domicile of its exploitation”. In addition, it is stated that dLocal receives invoices from abroad from its parent company, issues B invoices to foreign clients to justify income, and invoices companies in the same group. These practices would allow you to avoid the obligation to settle foreign currency from the export of services.

From the Argentine Customs, headed by Guillermo Michel, they indicated that they are evaluating the possibility of notifying the Wall Street regulator, the SEC, through the United States embassy in Buenos Aires, about the alleged fraud.

After a rocky close to 2022, dLocal reported earnings in the first quarter of the year.

The scandal of 2022 and the positive results of 2023

The financial results report indicated that the Uruguayan company obtained profits of US$35.5 million, 35% more than in the first quarter of 2022 when profitability had been US$26.3 million. The result was also positive in comparison with the last quarter of last year when profitability had been US$ 19.4 million.

The company thus reversed a bad closing of 2022 with an 18% drop in its profits in the fourth quarter, compared to the same period a year ago. The poor result was due to increased operating expenses and costs linked to a negative report by Muddy Waters Research firm.

In one passage, Muddy Waters said that an investigation led to the belief that dLocal was “likely a fraud.” According to the company, dLocal had “repeated disclosures about its total volume of payments and accounts receivable that flatly contradict each other. There is also a contradictory discrepancy between the accounts payable and accounts receivable of two key subsidiaries.

After that report, the CEO of the Uruguayan unicorn, Sebastián Kanovich, said: the “recent allegations of the short sales report are inaccurate.” The company “always segregated customer funds from its own, never had a deficit even before the IPO,” Kanovich said. “The strength of revenue and acquisition rates reflect the value that dLocal offers to its clients,” he added.

“Short seller reports are often designed to drive the stock price down to serve the interests of the short seller to the detriment of the company’s shareholders. We caution shareholders not to make investment decisions based on this report,” the company had said in a statement.

“A speculator published a report, we responded to him at the moment we thought appropriate and now each investor will draw the conclusions that he should draw based on the reports we publish,” one of the founders of the Uruguayan unicorn, Sergio Fogel, told El Observador. after the incident with Muddy Waters.

Background of Muddy Waters

In parallel, Carson Block, CEO and owner of the Muddy Waters firm, announced a short selling stock position that allows you to earn money if the price of a share falls.

In fact, the hedge fund Muddy Waters already had a history of publishing negative reports on companies that ended up losing millions on the stock market.

According to a survey carried out by El Observador, Muddy Waters published documents accusing Hannon Armstrong Sustainable of “inflating its earnings and cash flow”, according to the Reuters agency. After disclosing that report, the shares of this company fell 20%.

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