BREAKING: Roblox Faces Undisclosed Probes by SEC Enforcement and FTC Amid Hindenburg Accusations of “Inflated Key Metrics for Wall Street and a Pedophile Hellscape for Kids”

Based on Hunterbrook Media’s reporting, Hunterbrook Capital is short Roblox (NYSE: $RBLX) at the time of publication. Positions may change at any time. See full disclosures below.

U.S. regulators have been investigating Roblox Corp. (NYSE: $RBLX), the gaming giant Hindenburg Research accused of inflating key metrics and failing to keep harmful content off its platform, according to documents obtained through Freedom of Information Act requests. 

The SEC’s Division of Enforcement and the Federal Trade Commission have both opened probes into the $33 billion online gaming platform, the FOIA documents reveal. 

SEC

The SEC’s probe into the company appears to have been launched recently. 

In an August response to a FOIA request for information related to investigations or inquiries into Roblox, the SEC wrote that it “did not locate or identify any information responsive to your request.” 

But in response to a follow-up request, on October 17, the Commission changed its tune. “We are withholding records that may be responsive to your request,” the SEC wrote. 

The Commission cited Exemption 7(A), which is intended to protect information “compiled for law enforcement purposes, the release of which could reasonably be expected to interfere with enforcement activities.” 

The FOIA requests were made by Canary Data, a “database of investment risk,” which went on to appeal the October decision. 

On November 20, in response to the appeal, the SEC’s FOIA office wrote to Canary that it had “contacted Division of Enforcement staff that perform functions relevant to the company for which you seek records.” 

The Enforcement staff confirmed that records exist for “investigative matters related to the company” — in contrast to the August FOIA response — but maintained that these documents would be withheld from release under Exemption 7(A). 

The SEC cautions that “the assertion of this exemption should not be construed as an indication by the Commission or its staff that any violations of law have occurred with respect to any person, entity, or security.” The scale and subject of the investigation are also unknown.

FTC

The Federal Trade Commission, whose mission is  “protecting the public from deceptive or unfair business practices,” is also investigating Roblox. 

In response to a separate FOIA request sent by Canary seeking information on investigations or inquiries that “directly pertain to the conduct, disclosures, and/or transactions of the registrant Roblox,” the FTC stated it had identified “9,237 pages of responsive records.”

The agency would not share them, however.

Like the SEC, the FTC cited an exemption — which, in this case, “provides that information obtained by the Commission in a law enforcement investigation, whether through compulsory process, or voluntarily in lieu of such process, is exempt from disclosure.” 

In 2022, the watchdog group Truth in Advertising filed a complaint with the FTC alleging that Roblox allowed brands to create in-game advertisements that were not clearly disclosed as such, potentially misleading users, especially children.

“As of March 2024, the FTC had yet to publicly act on TINA.org’s April 2022 complaint,” the organization wrote on its website, which also links to 292 pages of consumer complaints. 

It is unclear if the probe referred to in the FOIA response is related to those allegations. 

[EMBED FTC DOCUMENT CLOUD]

Roblox does not appear to have disclosed either of these investigations — and did not respond to Hunterbrook Media’s repeated requests for comment on whether the company is cooperating with them. 

It is possible the company had been unaware of the existence of these probes. 

Probes come amid accusations that Roblox has presented misleading financials and created a petri dish for pedophilia 

The news of these probes follows the resignation of Roblox’s chief financial officer, Michael Guthrie, on September 30. According to a company filing, Guthrie notified Roblox of his intent to resign on August 1, 2024, “to pursue personal interests.” Guthrie, who on Friday sold more than $2 million worth of Roblox shares, will continue in his role until a successor is appointed. 

The probes also follow the release of a critical report by short seller Hindenburg Research, which raised concerns about both safety and accounting issues at Roblox. 

The SEC and FTC’s actions mark the latest in a series of wins for Hindenburg. 

The subjects of its two most recent short reports prior to Roblox — Super Micro Computer Inc. (NASDAQ: $SMCI)​​ and iLearningEngines Inc. (NASDAQ: $AILE) — have both since seen their share prices collapse, amid auditor resignations, earnings restatements, and federal investigations. Yesterday, the United States Department of Justice indicted billionaire Gautam Adani and several affiliates of his Adani Group, accused of fraud by Hindenburg in 2023. Each company, like Roblox, initially denied Hindenburg’s reporting.

The Hindenburg report on Roblox, published in October, came after critical a series of articles by Edwin Dorsey of The Bear Cave, who had repeatedly flagged issues with child predators on the platform. A more recent article by Dorsey also highlighted “school shooting games” on Roblox.

The Hindenburg report includes claims that Roblox is potentially overstating the number of people on its platform, as well as engagement hours. The report also noted that Roblox has had “net losses every quarter since becoming a public company” and that “the company’s response to the SEC appears to be a flat out lie” regarding its accounting of user metrics.

The report highlights concerns about child safety on Roblox, with allegations of insufficient measures to protect minors from inappropriate content and potential predators. “Our in-game research revealed an X-rated pedophile hellscape, exposing children to grooming, pornography, violent content and extremely abusive speech,” reported Hindenburg.

Roblox has challenged these claims, stating that the Hindenburg report is “misleading” and that the authors “have an agenda irrespective of the substance of Roblox’s business model and results.” 

To disclose or not to disclose?

The undisclosed SEC and FTC scrutiny of Roblox contribute to an ongoing debate over the responsibility of companies to disclose federal probes — especially given that companies may not be aware of the investigations  until later in the process; and that investigations can ultimately resolve and prove immaterial. 

Hunterbrook Media previously revealed an undisclosed SEC investigation into NuScale Power (NYSE: $SMR).

After initially criticizing Hunterbrook, the company soon filed an 8-K disclosing that it had, in fact, received requests from the SEC. The general counsel left NuScale one week later, and Law.com proposed that the situation was “likely to spur a new round of litigation” against NuScale and could impact the broader paradigm for company requirements to disclose SEC investigations.