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Shares of Lemonade (LMND) were down $1.17, or 2%, to $59.00 in pre-market trading after Muddy Waters' Carson Block disclosed that his firm is shorting Lemonade after finding in the course of doing "fundamental business research" that the company's site "contains an unforgivably negligent security flaw that potentially exposes its customers' personally identifiable information."

The company "clearly" does not care about securing its users' personal information, Block contends. Lemonade's failures "possibly implicate costly legal and regulatory breaches," Block argues in an open letter to the company that he posted on Muddy Waters' website. In the letter, Block calls upon Lemonade to "take its site offline immediately and fix the vulnerability."