Pax Global Technology (PXGYF) is under pressure on Wednesday after Florida's WOKV reported that the Federal Bureau of Investigation, the Department of Homeland Security and several other agencies began an investigation Tuesday morning at the company's warehouse in Jacksonville. Following the news, Viceroy Research said it is short Brazillian focused payment processors PagSeguro (PAGS) and StoneCo (STNE). Both PagSeguro and StoneCo are dependent on the Chinese company for their POS terminals, according to Viceroy, which now said it has "serious concern for the operational integrity" of both.
SHORT STONECO, PAGSEGURO: In a report published this morning, Viceroy Research said it is short Brazilian focused payment processors PagSeguro and StoneCo after it was reported that the FBI, in conjunction the Department of Homeland Security, raided the Florida locations of Pax Global Technology. Both PagSeguro and StoneCo are dependent on the Chinese company for their POS terminals, said Viceroy, which now has "serious concern for the operational integrity" of both. "We have been keeping an eye on the two companies for some time, but recent developments have prompted us to publish this brief note," the short-seller stated in its report published on its website.
Viceroy expects PagSeguro to be subject to significant regulatory action and scrutiny, with the clear possibility of legal action against the company by various counterparties. "We note that it is rare for payment terminals themselves to be compromised: these devices are typically independently certified and tested under PTS standards. We believe it is far more likely that the payment workstations were compromised while running 'fully integrated', receiving card data and facilitating communication with payment processors. Any breach is a material failure of both companies’ B2B internal audit controls and represents a serious risk to the PagSeguro’s PagBank license," the report reads.
Both PagSeguro and StoneCo did not immediately respond to The Fly's requests for comment.
FBI RAID: Florida's WOKV reported that the Federal Bureau of Investigation, the Department of Homeland Security and several other agencies began an investigation Tuesday morning at Pax Global's warehouse in Jacksonville, Florida. The website KrebsOnSecurity learned that the raid is tied to reports that Pax's systems may have been involved in cyberattacks on U.S. and European Union organizations. Headquartered in China, Pax has more than 60M point-of-sale terminals in use throughout 120 countries, the site noted. KrebsOnSecurity "heard from a trusted source" that the FBI began investigating Pax after a major U.S. payment processor started asking questions about unusual network packets originating from the company's payment terminals. According to that source, the payment processor found that the Pax terminals were being used both as a malware “dropper” — a repository for malicious files — and as “command-and-control” locations for staging attacks and collecting information.
PRICE ACTION: In Wednesday morning trading, shares of Pax Global Technology trading in the U.S. have dropped 36c, or 30% to 85c. Meanwhile, PagSeguro has dropped almost 3%, and StoneCo has slid more than 5%.
