Block wins shareholders' lawsuit over Cash App data leak in 2021

Block emerged victorious on Tuesday in the lawsuit filed by its shareholders regarding the alleged data leak from Cash App that occurred on December 10, 2021. The financial company had been accused of misleading shareholders about a significant gap in security in its mobile payment service Cash App.

District Judge Margaret Garnett ruled in favor of the technology company, arguing that there was no valid evidence that Block had attempted to defraud shareholders regarding the data leak incident. According to a 42-page court document, a former Block employee downloaded personal information from approximately 8.2 million Cash App users.

Shareholder Accusations Regarding Security Practices

The class action revealed that the owner of Cash App was accused of inflating the price of its shares by failing to disclose its inadequate data security measures prior to the leak. Shareholders also accused the company of waiting almost four months before revealing the gap in security in April 2022.

The California-based firm was also accused of misleading former Afterpay shareholders about its security practices. They alleged that Block was more focused on completing its $29 billion acquisition of that Australian company in January 2022.

The district judge concluded that investors could not access the general statements made by the tech company in its regulatory filings. Garnett also stated that investors could not interpret the risks as claims that their data security was solid.

According to the judge, the shareholders failed to demonstrate any unique connection between the alleged misleading statements and the acquisition of Afterpay. She added that the shareholders could not determine that the executives of Block benefited in any valid way to establish a motive for fraud.

The technology company agreed in January to pay 80 million dollars after 48 state financial regulators accused Cash App of lacking sufficient anti-money laundering policies. The owner of Cash App was also required to take corrective actions to improve its internal processes and hire an independent consultant to review the effectiveness of its anti-money laundering program.

Block stated that it increased its investment in compliance and risk management as Cash App grew. The company added that it is committed to addressing the challenges of the industry and will continue to promote healthy and self-regulated fintech ecosystems.

Gate reaches agreement in money laundering case in New York

As previously reported, Gate reached another 40 million dollar settlement with New York in April. The New York Department of Financial Services (NYDFS) concluded that the tech firm had significant gaps in its anti-money laundering compliance program related to its Gate platform.

The Gate program for the Bank Secrecy Act (BSA) / Anti-Money Laundering (AML) had deficiencies, such as inadequate procedures for customer due diligence. The company also lacked effective risk-based controls and did not adequately monitor transactions.

According to the NYDFS, Gate allegedly allowed high-risk transactions with cryptocurrencies without sufficient oversight. The lack of oversight in its digital transactions raised concerns about the company's anti-money laundering practices.

According to court documents, Gate exacerbated the situation during its expansion in 2019 and 2020 by neglecting to address a buildup of transaction alerts. The alerts also remained unresolved for an extended period.

The NYDFS subsequently concluded that the technology firm had insufficient monitoring processes to detect and prevent potential illicit transactions. The department instructed Gate to appoint an independent monitor to evaluate its compliance with NYDFS laws. The independent monitor is also expected to assist Gate in assessing its corrective actions and ensure that it remedies the identified compliance deficiencies.

Adrienne Harris, Superintendent of the New York Department of Financial Services, stated that compliance functions must align with the growth or expansion of the business. The superintendent affirmed that the NYDFS will take the necessary steps to ensure accountability, including the appointment of an independent monitor to oversee corrective measures.