Unreported / Non-Citable
Background
This putative securities fraud class action was brought under the Private Securities Litigation Reform Act (PSLRA) against Block, Inc., Jack Dorsey, and Amrita Ahuja. Lead Plaintiff NYC Funds alleged that Defendants made materially false and misleading statements regarding Cash App’s compliance programming and user growth metrics between February 26, 2020, and May 1, 2025.
Plaintiff claimed Block’s reported user numbers were inflated by duplicate, fraudulent, and illicit accounts enabled by deliberately lax compliance controls designed to facilitate ‘frictionless onboarding.’ The fraud was allegedly revealed by a March 23, 2023 Hindenburg Research report estimating 40–75% of reviewed accounts were fake or fraudulent, causing a near 15% stock drop. Subsequent regulatory investigations and a May 1, 2025 earnings miss further depressed the stock. Lead Plaintiff moved to certify a class of all purchasers of Block Class A common stock during the proposed class period, appoint NYC Funds as class representative, and appoint Lieff Cabraser and Cohen Milstein as class counsel.
The Court’s Holding
The Court granted class certification in part, limiting the class period to February 26, 2020, through March 23, 2023 (the date of the Hindenburg Report). The Court found Rule 23(a) requirements (numerosity, commonality, typicality, adequacy) satisfied and unchallenged. On Rule 23(b)(3) predominance, the Court held that the fraud-on-the-market presumption of reliance under Basic v.
Levinson applied to the pre-Hindenburg period because Defendants did not rebut it. For the post-Hindenburg period (March 24, 2023 – May 1, 2025), the Court found Defendants successfully rebutted the presumption by showing four subsequent disclosures (August 2023 10-Q, February 2024 NBC article, May 2024 NBC article, May 2025 earnings call) were not ‘corrective’—they merely repeated Hindenburg’s allegations or noted their materialization, rather than revealing new, value-relevant information contradicting prior misstatements. Thus, individualized reliance issues would predominate post-March 23, 2023. On damages, the Court found Plaintiff’s expert’s proposed out-of-pocket (event study) methodology sufficient at the certification stage to calculate class-wide damages for the shortened period, rejecting Defendants’ challenges regarding confounding factors and risk materialization as merits-based loss causation inquiries inappropriate for certification.
Key Takeaways
- Class certified for purchasers of Block Class A common stock from February 26, 2020, to March 23, 2023 only; post-Hindenburg purchasers excluded due to rebutted reliance presumption.
- Defendants bear burden of production and persuasion to rebut Basic presumption by showing lack of price impact; here, subsequent disclosures deemed non-corrective because they contained no new information contradicting prior misstatements.
- Out-of-pocket/event study methodology accepted at certification stage for class-wide damages; challenges to expert’s handling of confounding events and risk materialization go to loss causation, not predominance.
- NYC Funds appointed Class Representative; Lieff Cabraser and Cohen Milstein appointed Co-Lead Class Counsel under Rule 23(g).
- Court emphasizes certification inquiry is distinct from merits mini-trial; rigorous analysis required but limited to Rule 23 prerequisites.
Why It Matters
This order illustrates the critical role of corrective disclosures in defining the class period in securities fraud actions. By holding that post-Hindenburg disclosures merely reiterated or confirmed the initial revelation—rather than correcting new misrepresentations—the Court narrowed the class period to the initial corrective disclosure date.
This reinforces that the fraud-on-the-market presumption evaporates once the market learns the truth, absent new actionable misstatements. The ruling also reaffirms Ninth Circuit precedent that damages methodology challenges targeting loss causation inputs (e.g., confounding events, risk materialization) are premature at certification if the proposed model (here, event study) is generally accepted and theoretically aligned with the liability theory.