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Investing.com -- Shares of DLocal Limited (NASDAQ: DLO) tumbled 10% following a cautious report by Hollenden Square Research, which raised concerns about the company’s financial practices and potential irregularities. The report, which compares dLocal’s operations to past financial scandals, suggests that the payment services provider may be involved in activities commonly associated with accounting fraud and money laundering.
Hollenden Square Research, a private entity with a net short position in dLocal, has compiled over 500 pages of investigative research into dLocal and its sister companies, AstroPay and Directa24. The report outlines a series of troubling patterns, including transactions with questionable counterparties and financial statements that appear to contain numerous inaccuracies.
The research suggests discrepancies between the foreign exchange net exposure reported by individual subsidiaries and the consolidated accounts disclosed by dLocal. These findings raise questions about the reliability of dLocal’s reported consolidated financial statements, including assets, liabilities, profits, and reported cash balances.
The report also casts doubt on how dLocal managed to achieve high gross take rates and margins in FY 2023, especially when compared to industry giants like Adyen (AS:ADYEN) in similar markets. Concerns about high customer and supplier concentration, as well as stagnant merchant numbers, were highlighted as potential red flags.
Further complicating the company’s outlook is an ongoing investigation by Argentine regulators into potential capital control evasion involving dLocal. Despite dLocal’s denial of any wrongdoing, the report notes the company’s significant commitments in Argentina, including a $100 million investment in government bonds and a pledge to substantially increase its local workforce, which could be interpreted as an attempt to influence the investigation.
The report also reveals a network of undisclosed related parties and irregular currency balances within certain dLocal subsidiaries, patterns observed in other regions with currency and capital controls.
Investors reacted negatively to the detailed allegations, leading to a significant drop in dLocal’s stock price. The market’s response reflects growing skepticism regarding dLocal’s financial integrity and the potential impact of these allegations on the company’s future operations.
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