Uruguayan fintech startup dLocal faces allegations of potential fraud; applied for a UK regulatory license

It’s been over two years since we last covered dLocal, a Montevideo, Uruguay-based fintech startup that offers a cross-border payment platform that connects global merchants in emerging markets. At the time, the Latin America-based dLocal just raised $200 million for cross-border payments to become a member of the highly-coveted unicorn club at a $1.2 billion valuation.

Fast forward to this year. dLocal faces allegations of potential fraud from a short-seller, according to a report from Reuters. Glancy Prongay & Murray LLP, a leading securities fraud law firm, also announced an investigation into DLocal Limited (DLO) on behalf of defrauded investors.

According to another report from CNBC, citing short hedge fund Muddy Waters, on November 16, 2022, Muddy Waters Capital LLC (“Muddy Waters”) published a research report concluding that DLocal “is likely a fraud.”

“Muddy Waters alleges that DLocal has repeated disclosures about its Total Processing Volume and accounts receivable “that flatly contradict one another” and that there is “a contradictory discrepancy between two key subsidiaries’ accounts payable and accounts receivable.” Muddy Waters also alleges that DLocal engaged in multiple misrepresentations to disguise the timing and the source of funding for an insider option exercise,” the law firm said in a news release.

The startup is now under fire for weak regulation, and its CEO says the dLocal has applied for a UK regulatory license during a recent call reviewed by Reuters. The revelation came amid claims that dLocal dodged rigorous regulatory oversight by relying on Maltese regulators.

dLocal, which is backed by major tech funds including General Atlantic, Tiger Global, and D1, has seen its stock drop by nearly 50% since  Muddy Waters report was published in November. But dLocal denied it.

dLocal was founded in January 2016 by Sebastian Kanovich and Sergio Fogel as a spin-off of AstroPay. The company’s payment platform empowers anyone to reach billions of customers, accept payments, send payouts, and settle funds globally. Its 360°, single-API platform is designed to handle and facilitate mass online payments across Latin America, APAC, the Middle East, and Africa. By operating as a merchant’s local payments processor in each country, dLocal empowers global merchants to reach billions of customers, accept payments, send payouts, and settle funds globally.

Meanwhile, in a closed-door call hosted by Goldman Sachs, Kanovich said that a full license with the UK Financial Conduct Authority (FCA) was pending, citing the UK’s exit from the European Union.

“We are in close consultation (with the FCA), we already filed our application,” Kanovich said.

However,  Kanovich did not provide the details of what stage they were at with the application, which according to Reuters could take “around 12 months – or which of its entities would fall under UK jurisdiction.”

dLocal’s single-API platform was designed to handle and facilitate mass online payments across Latin America, APAC, the Middle East, and Africa. By operating as a merchant’s local payments processor in each country. By operating as the payments processor and merchant of record in each market, dLocal is making it simple for online companies to reach 2 billion digitally-savvy consumers in today’s fastest-growing markets.

Over 450 global e-commerce merchants, online travel providers, and marketplaces rely on dLocal to accept more than 300 locally-relevant payment methods including local credit and debit cards, bank transfers, and cash payments, as well as issue millions of payments to their contractors, agents, and sellers in growth markets around the world.

The company has been profitable every year, achieving over 100% annual organic growth over the past four years.  dLocal’s recent momentum is underscored by successful new business wins in additional high-growth markets, including India, Morocco, Nigeria, and South Africa. Its global customers include Amazon, DiDi, Gearbest, Nike, Shopify, Spotify, Uber, Visa/Earthport, Zara, and many others.