Rubin v. Dorsey et al

On January 13, 2023, Michael Rubin (“Plaintiff”), represented by David C. Katz of Weiss Law, filed a civil enforcement lawsuit against Block, Inc. (“Block” or the “Company”), Jack Dorsey, Roelof Botha, Amy Brooks, Shawn Carter, Paul Deighton, Randy Garutti, James Mckelvey, Mary Meeker, Lawrence Summers, and Darren Walker (collectively, “Defendants”), seeking declaratory relief and the disgorgement of ill-gotten gains for alleged violation of the Securities and Exchange Act (the “Exchange Act”). This case was filed in the U.S. District Court for the Southern District of New York. 

In the complaint, the plaintiff alleged, “This is a stockholder derivative action brought against the members of the Block Board of Directors (the ‘Board’) for their breaches of fiduciary duties, violations of the federal securities laws, and other misconduct, which resulted in substantial damage to the Company and its stockholders. Block is a global technology company offering Cash App, a financial platform which provides mobile payment services for consumers. Critical to these core operations is the gathering and storage of customer’s personal identification information (‘PII’).”

Plaintiff further alleged, “Companies that gather and store PII undertake strict responsibilities under federal and state laws, as well as under established industry standards. The Individual Defendants knew of these legal requirements, as well as the substantial risk to the Company’s financial condition and core operations from breaches in data security and the need to adopt reasonable best cybersecurity practices, having acknowledged these very risks repeatedly in public filings.”

Plaintiff also alleged, “Individual Defendants failed to implement and monitor reasonable and appropriate internal controls over customers’ PII. Security breaches on the Cash App platform dating back to 2020, should have, but did not, serve as red flags to spur the Individual Defendants to investigate and take action.”

The plaintiff then alleged, “In December 2021, the consequences of the Individual Defendants’ utter failure to implement and monitor internal controls over the Company’s data security became apparent when the Company suffered a major data breach potentially compromising over eight million customers’ PII. The Individual Defendants compounded the damage by failing to cause Block to comply with the various federal and state laws requiring timely disclosure to consumers that their PII was unlawfully accessed.”

Additionally, the plaintiff alleged, “Individual Defendants’ breaches of fiduciary duty and other misconduct, Block has sustained substantial damages and irreparable injury to its reputation. The Individual Defendants’ violations of the federal securities laws, including their securing the re-election of certain directors through a false and misleading proxy statement and causing the Company to repurchase shares on the open market at artificially inflated prices, have likewise caused material damage to the Company.”

Plaintiff also alleged that “Plaintiff did not make a demand prior to bringing this action because it would be futile. The Company’s directors are neither disinterested nor independent. In the absence of this action, Block will neither recover its damages nor properly remediate the weaknesses in its internal controls and corporate governance practices and procedures.”

Plaintiff presented five claims for relief, including for alleged violation of Sections 10(b) and 14(a) of the Exchange Act, breach of fiduciary duty, contribution, and indemnification.

In the prayer for relief, the plaintiff requested a judgment granting declaratory relief. The plaintiff also requested an award for damages and the disgorgement of ill-gotten gains along with pre- and post-judgment interest. 

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