Federal regulators investigating Block’s Cash App are likely to take action as soon as this year, said a lawyer representing whistleblowers who filed complaints about the company.

The whistleblowers allege that Cash App’s user identity verification methods aren’t sufficient to prevent fraudulent activity such as money laundering and the financing of terrorism, according to an NBC News report last month.

The complaints were filed with the Financial Crimes Enforcement Network, an agency in the U.S. Treasury Department, as well as with the Securities and Exchange Commission and the Commodity Futures Trading Commission, said Ted Siedle, the lawyer representing the whistleblowers.

“The Cash App whistleblowers are talking to multiple regulators and the regulators are taking it very seriously,” Siedle said in an interview. Siedle is a former SEC enforcement attorney who performs forensic analysis for whistleblower cases mainly related to financial services.

Some state agencies are also looking into the Cash App issues, he added, saying he has been in touch with one state.

There is a high degree of collaboration happening among the agencies with respect to the complaints, Siedle said, which suggests to him that the authorities are gearing up to act. He spent two hours on the phone with some regulators last week, he said.

“I’m seeing cooperation among agencies,” Siedle said. “I am sensing there will be a regulatory reaction as early as this year.”

The case lands as lawmakers and regulators have become increasingly concerned about potential problems with how some peer-to-peer apps and other payments tools are being used for fraudulent activity. And Cash App isn’t the only service facing criticism, particularly with respect to protecting consumers.

For instance, some Democrats in Congress have railed about Zelle, the P2P tool offered by Early Warning Services, because of its use in scams designed to swindle consumers.

“We cannot comment on any investigation or confirm if there is even one going on,” a spokesperson for the CFTC said by email, noting the commission only comments if and when enforcement actions are taken. 

FinCEN and the SEC didn’t immediately respond to a request for comment.

The regulators involved in scrutinizing these payments tools are “diverse and collaborating with one another,” Siedle said. As evidence of an impending action, he also cited the long-running nature of the probes.

In an SEC disclosure about a federal investigation last month, Block warned that the Consumer Financial Protection Bureau might take “legal action” against the company over Cash App.

Block has also previously disclosed it has received civil investigative demands since 2021 from the CFPB and multiple state attorneys general “seeking the production of information related to, among other things, Cash App’s handling of customer complaints and disputes.”

A Block spokesperson didn’t immediately respond to a request for comment.

The three whistleblower cases filed against Cash App differ, depending on the laws involved, with the SEC case revolving around disclosure violations, the FinCEN case related to bank compliance violations, and the CFTC case involving bitcoin, Siedle said.

Siedle didn’t provide any other specific detail about the timing of any investigators’ actions, adding that he doesn’t have a prediction as to which regulator may act first, or whether they will act in concert. He declined to provide the whistleblower complaints.

“Everyone knows these cash payments systems are rife with fraud,” Siedle argues. Part of the problem is fintechs are linking with banks to offer the services, but banking authorities aren’t up to speed on how these partnerships are operating, he said.

He noted Cash App’s work with Wells Fargo and Sutton Bank of Ohio and formerly with Lincoln Savings Bank of Iowa. Sutton issues prepaid debit cards for Cash App that are linked to the Visa network, the NBC report said.

By Lynne Marek on March 4, 2024
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