(Reuters) – Shares of buy-now, pay-later firm Sezzle fell on Wednesday after Hindenburg Research revealed a short position, citing risky lending practices along with shrinking customers and merchants.
Shares of Sezzle, which has gained more than 1,000% this year, fell 28.6% to $225 in the session before closing in on losses. Last trade was 14% lower.
“Our findings show that Sezzle is borrowing expensive capital to make extremely risky loans through a complex platform that is rapidly losing customers and merchants,” the short seller said.
Hindenburg, who was behind the more than $100 billion market wipeout in India’s Adan Group and also targeted the Jack Dorsey-led bloc, added that Sezzle insiders were selling shares or cashing out through massive margin loans.
Szele did not immediately respond to a Reuters request for comment. Reuters could not independently verify the evidence of the Hindenburg report.
BNPL is a financing option that allows customers to make purchases and pay them off over time, usually in installments. It gained popularity in 2020 after the COVID-19 pandemic pushed more shoppers online.
Since most BNPL providers do not report their loans to credit reporting agencies, there is scarce data on delinquencies.
In November, Sezzle reported that retail sales rose 40.6% in the quarter ended Sept. 30.
It also raised its forecast for full-year adjusted profit and revenue growth.
Founded in 2017 by Nathan Anderson, Hindenburg is a forensic financial research firm that analyzes equity, credit and derivatives.
Hindenburg invests its own equity and takes short positions in companies. After discovering potential wrongdoing, the company usually publishes a report explaining the case and placing bets against the target company in hopes of making a profit.
Short sellers typically sell borrowed securities and aim to buy them at a lower price.