A previously largely unnoticed detail in Square’s IPO filing has become a point of concern for potential investors.
When the mobile payments company first filed to go public on Oct. 14, only a few media outlets — The Wall Street Journal and PYMNTS being among them — made note of the mention, in the risk section of Square’s S-1 filing with the SEC (Securities and Exchange Commission), of a $5.7 million loss “related to fraud by a single seller.”
The incident has recently gained more attention in the press, and what’s been discovered about the accused fraudster might be likely to increase concerns about Square’s ability to prevent fraud.
BuzzFeed News reports that it wasn’t a sophisticated cybercriminal who was responsible for nearly 23 percent of Square’s transaction and advance losses for the first half of 2015, but allegedly an Omaha, Nebraska-based event planning company called Creative Creations, run by one Patricia Urbanovsky. The entity and its individual owner, according to what Urbanovsky’s lawyer Steven Lefler told BuzzFeed News, are actually “probably” one and the same.
According to the outlet, felony charges have been filed on behalf of Square in Douglas County (NE) District Court against Urbanovsky, alleging that she sold phony discounted travel vouchers (based on a likewise false connection to Southwest Airlines), accepting payment through Square. When customers demanded refunds, Creative Creations did not grant them, thereby leaving Square itself liable for the millions of dollars in dispute.
A story from the Omaha World-Herald in June shows that Square filed a criminal report with the Omaha Police Department, telling the police that it had accepted over $7 million in credit card and debit card payments from Creative Creations customers between October 2014 and March 2015 that amounted to $2.8 million in chargebacks.
Regarding the difference between that number and the loss that Square cited in its SEC filing, BuzzFeed posits that the latter number is higher because that $5.7 million represents Square’s largest potential loss.
The FBI and IRS are now involved in the investigation of Urbanovsky, who is currently facing three counts of theft-deception in Douglas County District Court. Lefler acknowledged to BuzzFeed News that filing for bankruptcy is a possibility for Creative Creations in the future, while Urbanovsky herself filed lawsuits in August against four former Creative Creations employees, alleging they were to blame for the travel voucher mishap.
Regardless of who was at fault or whether the fraud was deliberate, it’s an embarrassing situation for Square as it attempts to go public.
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