Sezzle Inc. Faces Market Collapse Amid Allegations of Risky Lending Practices

On December 18, 2025, Sezzle Inc. (NASDAQ: SEZL), a prominent player in the buy now, pay later (BNPL) industry, experienced a staggering decline in its market capitalization—nearly 25%. This downturn follows allegations from Hindenburg Research, a well-known activist short-selling firm, that raised serious concerns regarding Sezzle's business practices and financial sustainability. Hagens Berman, a shareholder rights law firm, has initiated an investigation to scrutinize these allegations and assess potential violations of U.S. securities laws.

Sezzle offers consumers the ability to finance their purchases by spreading their payments over time, primarily attracting those seeking alternatives to traditional credit methods. The BNPL model skyrocketed in popularity amid rising inflation, which has prompted consumers to explore different financing strategies. This surge propelled Sezzle's stock price by over 1,000%, closely accompanying a notable increase in sales made through its merchant partners.

However, the tide turned dramatically following Hindenburg's deeply critical report. The firm suggested Sezzle was relying on a line of credit with extraordinarily high interest rates—over 12%—to fund loans to subprime borrowers. This revelation raised alarms about the viability of lending models that target individuals who lack access to conventional credit options.

Hindenburg's report also suggested that Sezzle's partnerships with retailers, including major players like Target, had failed to meet expectations. The report indicated a significant decrease in the number of active merchants using Sezzle's services, leading to questions about the company's future expansion and profitability.

Adding to the precarious situation, there are concerns regarding the company’s leadership and financial management strategies. Sezzle's CEO and Chairman reportedly pledged shares valued at approximately $542 million as collateral for a margin loan—equating to nearly 30% of the firm’s total shares—which could indicate a fragile financial standing and mounting pressure from investors to generate returns.

Furthermore, Hindenburg's analysis unearthed troubling trends concerning Sezzle's customer base, which reportedly shrank by about 20% since 2021. Despite this decline, some reports from the company touted impressive growth in their subscription services, which Hindenburg contended could be artificially inflated through questionable enrollment tactics. This tactic raises questions about the integrity of reported user engagement statistics, suggesting that the company may not be as robust as portrayed.

Adding further complications, consumer complaints against Sezzle have surged, drawing the attention of regulatory bodies. The report implies that insiders at Sezzle view the company as a precarious investment, noting that insiders have divested around $71 million in shares this year alone. Even significant early investors have dramatically reduced their stakes, with one noted pre-IPO investor slashing their holdings by an astonishing 87%.

The implications of Hindenburg's claims, if substantiated, could mean that Sezzle misled investors regarding the health of its business model and the soundness of its financial strategies. Reed Kathrein from Hagens Berman, leading the investigation stated, "Hindenburg's allegations, if proven accurate, would have serious ramifications for investor trust and the company’s operational viability."

As the scrutiny intensifies, the future of Sezzle lies in a precarious balance as investors await further developments regarding the investigation. Those affected by this downturn are encouraged to seek legal advice and potentially join the efforts to better understand the dynamics at play. The fallout from these accusations underscores the risks inherent in rapid-growth companies operating in uncharted financial territory—risks that can reverberate across the industry and impact a myriad of stakeholders.

For updates and more information about the ongoing investigation, impacted investors are urged to visit Hagens Berman’s website or reach out to their offices directly. The unfolding situation serves as a stark reminder of the importance of transparency and accountability in the fast-evolving landscape of financial technology.