Block won its shareholder lawsuit on Tuesday over the alleged December 10, 2021, Cash App data breach. The financial company was accused of misleading shareholders in connection with a large data breach at its Cash App mobile payment service.
U.S. District Judge Margaret Garnett ruled in favor of the tech firm, arguing that there was no valid proof Block intended to defraud shareholders in regards to the data breach incident. According to a 42-page court document, a former Block employee downloaded personal information of about 8.2 million Cash App users.
Shareholder suit alleges Block misled on security practices
The class action lawsuit revealed that the Cash App owner was accused of hiking its stock price by failing to disclose its inadequate data security before the breach. Shareholders also accused the company of waiting nearly four months before disclosing the data breach in April 2022.
The California-based firm was also accused of misleading former shareholders of Afterpay on its security practices. They alleged that Block was more focused on completing its $29 billion buyout of that Australian company in January 2022.
The District judge concluded that investors could not access general statements that the tech company made in regulatory filings. Garnett also said investors could not view the risks as assertions that its data security was sound.
According to the judge, shareholders failed to show any unique connection between alleged misstatements and the Afterpay buyout. She added that shareholders could not ascertain that Block executives benefited in some valid way to establish a motive to defraud them.
The tech company agreed in January to settle $80 million after 48 state financial regulators accused Cash App of lacking sufficient anti-money laundering policies. The Cash App owner was also required to take corrective action to improve its internal processes and hire an independent consultant to review the effectiveness of its AML program.
Block said it increased its investment in compliance and risk management as the Cash App grew. The company added that it was committed to addressing industry challenges and will continue to promote self and healthy fintech ecosystems.
Block settles $40M in New York’s AML case
As previously reported by Cryptopolitan Block reached another $40 million settlement with New York in April. New York’s Department of Financial Services (NYDFS) concluded that the tech firm had significant gaps in its anti-money laundering compliance program linked to its Cash App platform.
The Block’s Bank Secrecy Act (BSA)/AML program had lapses, such as inadequate procedures for customer due diligence. The company also lacked effective risk-based controls and failed to monitor transactions adequately.
According to the NYDFS, Block allegedly permitted high-risk Bitcoin transactions to occur without sufficient oversight. The lack of oversight on its digital transactions raised concerns about the company’s anti-money laundering practices.
According to court documents, Block aggravated the situation during its 2019 and 2020 expansion by neglecting to address a backlog of transaction alerts. The alerts were also left unresolved for an extended period.
The NYDFS later concluded that the tech firm had insufficient monitoring processes to detect and prevent potential illicit transactions. The department instructed Block to appoint an independent monitor to assess its adherence to NYDFS laws. The independent monitor is also expected to help Block evaluate its corrective actions and ensure it remedies the identified compliance deficiencies.
“All financial institutions, whether traditional financial services companies or emerging cryptocurrency platforms, must adhere to rigorous standards that protect consumers and the integrity of the financial system.”
-Adrienne Harris, Superintendent at New York’s Department of Financial Services.
Harris maintained that compliance functions must align with company growth or expansion. The superintendent stated that the NYDFS will take the necessary steps to ensure accountability, including appointing an independent monitor to oversee corrective measures.
