Block Inc. finds itself in hot water as its shares plummet 18% to $59.80 in US premarket trading following Hindenburg Research’s announcement that it has taken a short position on the company. The notorious short seller alleges that Block Inc. has been deceiving its investors, and is confident that the stock is poised for a decline.
As the news spreads, investors are left reeling, unsure of what to make of the situation. Block Inc.’s future hangs in the balance, and it remains to be seen how the company will respond to these allegations. Will it be able to weather the storm and prove its innocence, or will it sink further into the abyss?
Block didn’t immediately reply to an email request for comment from AlexaBlockchain before regular business hours.
One thing is clear: in the world of high finance, there are always winners and losers. For now, it seems that Hindenburg Research is on the winning side, but only time will tell how this drama will ultimately unfold.
Block Inc. is a multinational technology conglomerate that was founded in 2009 by Jack Dorsey and Jim McKelvey.
The company launched its first platform in 2010 and has been publicly traded on the New York Stock Exchange since November 2015 under the ticker symbol SQ.
Formerly known as Square, Inc. until December 10, 2021, the company’s namesake product for small businesses is still titled “Square”.
The company offers a payments platform called Square that is aimed at small and medium-sized businesses, allowing them to accept credit card payments and use smartphones or tablets as payment registers for a point-of-sale system.
In addition to Square, Block Inc. has several other businesses, including Cash App, a mobile app that facilitates monetary transfers among users and between users and businesses; Afterpay, a buy-now-pay-later service; Weebly, a web hosting service; and Tidal, a subscription-based music, podcast, and video streaming service that offers audio and music videos.
Hindenburg Research Report Claims Block Inc. Facilitates Fraud and Misleads Investors
Earlier today, Hindenburg Research released a report on Block Inc. that claims to have developed a “frictionless” and “magical” financial technology to empower the “unbanked” and the “underbanked”.
- Hindenburg accused that Block has embraced one traditionally “underbanked” segment of the population: criminals. The company’s “Wild West” approach to compliance made it easy for bad actors to mass-create accounts for identity fraud and other scams, then extract stolen funds quickly.
- Block’s Cash App platform has been cited “by far” as the top app used in reported U.S. sex trafficking, according to a leading non-profit organization. Multiple Department of Justice complaints outline how Cash App has been used to facilitate sex trafficking, including sex trafficking of minors, the short seller mentioned.
- Hindenburg’s two-year investigation has concluded that Block has been taking advantage of the demographics it claims to be helping.
- The report accuses Block of facilitating fraud against consumers and the government, avoiding regulation, dressing up predatory loans and fees as revolutionary technology, and misleading investors with inflated metrics.
- The investigation involved dozens of interviews with former employees, partners, and industry experts, extensive review of regulatory and litigation records, and FOIA and public records requests.
- The report indicates that Block has overstated its genuine user counts and has understated its customer acquisition costs.
- Former employees estimated that 40%-75% of accounts they reviewed were fake, involved in fraud, or were additional accounts tied to a single individual.
- The company’s “Wild West” approach to compliance made it easy for bad actors to mass-create accounts for identity fraud and other scams and quickly extract stolen funds, the report claimed.
- The payment platform has been overrun with scam accounts and fake users, the report claimed based on interviews with former employees.
- The report claims that Block obfuscates how many individuals are on the Cash App platform by reporting misleading “transacting active” metrics filled with fake and duplicate accounts. Block can and should clarify to investors an estimate of how many unique people actually use Cash App.
- The report claims that Cash App has been overrun with scam accounts and fake users. Examples of obvious distortions abound: “Jack Dorsey” has multiple fake accounts, including some that appear aimed at scamming Cash App users. “Elon Musk” and “Donald Trump” have dozens.
- Cash App suppressed internal concerns and ignored user pleas for help as criminal activity and fraud ran rampant on its platform. This appeared to be an effort to grow Cash App’s user base by strategically disregarding Anti Money Laundering (AML) rules, the report claims.
- The COVID-19 pandemic and nationwide lockdowns posed an existential threat to Block’s key driver of gross profit at the time, merchant services. In this environment, amid Cash App’s anti-compliance free-for-all, the app facilitated a massive wave of government COVID-relief payments.
- Within weeks of Cash App accounts receiving their first government payments, states were seeking to claw back suspected fraudulent payments. Rapper “Nuke Bizzle”, made a popular music video about committing COVID fraud. Several weeks later, he was arrested and eventually convicted for committing COVID fraud. The only payment provider mentioned in the indictment was Cash App, which was used to facilitate the fraudulent payments.
- Hindenburg Research believes that Block has misled investors on key metrics, and embraced predatory offerings and compliance worst-practices in order to fuel growth and profit from facilitation of fraud against consumers and the government.
- According to Hindenburg, Jack Dorsey has amassed a $5 billion personal fortune. With Dorsey and top executives already having sold over $1 billion in equity on Block’s meteoric pandemic run higher, they have ensured they will be fine, regardless of the outcome for everyone else.
Hindenburg Research LLC is a New York City-based investment research firm founded by Nathan Anderson in 2017. With a focus on activist short-selling, the firm has gained notoriety for its public reports alleging corporate fraud and malfeasance.
The firm takes its name from the 1937 Hindenburg disaster, which they see as a symbol of human-made avoidable disasters.
Through its website, Hindenburg Research publishes detailed reports on companies it believes are engaging in fraudulent or illegal practices, such as Adani Group, Nikola, Clover Health, Kandi, and Lordstown Motors.
Hindenburg Research’s reports are often controversial and can have a significant impact on the companies they target. The firm’s reports defend the practice of short-selling and assert that it can play a crucial role in exposing fraud and protecting investors.
Editor’s note: This is a developing story. Inputs may change. More information will be added soon.