After Adani, Hindenburg Research Targets Twitter Co-Founder Jack Dorsey's Payment App 'Block'; Firm Shares Crash

After Adani, Hindenburg Research Targets Twitter Co-Founder Jack Dorsey's Payment App 'Block'; Firm Shares Crash.

Block, the fintech company co-founded by Twitter CEO Jack Dorsey, has been accused of facilitating fraud against consumers and the government, avoiding regulation, and misleading investors, according to a report by short-seller Hindenburg Research. Following the report's release, Block's shares fell by over 18% as investors reacted to the allegations.

Hindenburg Research conducted a two-year investigation into Block and concluded that the company had systematically taken advantage of the demographics it claims to be helping. 

The report alleges that the "magic" behind Block's business has not been disruptive innovation but rather the company's willingness to facilitate fraud against consumers and the government, avoid regulation, dress up predatory loans and fees as revolutionary technology, and mislead investors with inflated metrics.

One of the report's main claims is that Block's Cash App, which aims to provide financial services to consumers, thrived on serving "unbanked" customers who were involved in criminal or illicit activity. 

The report further alleged that even when users were caught engaging in fraud or other prohibited activity, Block blacklisted the account without banning the user, and blacklisted accounts were regularly associated with dozens or hundreds of other active accounts suspected of fraud.

NEW FROM US:

Block—How Inflated User Metrics and "Frictionless" Fraud Facilitation Enabled Insiders To Cash Out Over $1 Billionhttps://t.co/pScGE5QMnX $SQ

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— Hindenburg Research (@HindenburgRes) March 23, 2023

Block was founded in 2009 with the disruptive idea of a tiny card reader that could plug into a smartphone's headphone jack to enable credit card payments between payers and vendors. In 2013, the company launched Square Cash, later rebranded as Cash App, to compete with Venmo by providing financial services to consumers through a peer-to-peer mobile app where users could send and receive money.

Block expanded into more traditional banking in 2017 with the introduction of the Cash Card, a prepaid debit card allowing users to transact outside of their virtual Cash App wallet. In 2018, following the spike in Bitcoin's price and popularity, Cash App allowed users to move funds in their Cash App wallet into Bitcoin.

Block's alleged fraudulent activities, as reported by Hindenburg Research, have caused significant damage to the company's reputation and shareholder value. The company denies the allegations, stating that Hindenburg Research's report contains "falsehoods and misleading statements."

Block's response to the report was swift, with the company releasing a statement saying, "We believe that the report contains numerous inaccuracies and that the allegations are baseless. We have always sought to comply with all applicable laws and regulations, and deny the claims made in the report."

The company also defended its practices, stating that it had a "comprehensive fraud detection system" and that it worked closely with law enforcement agencies to identify and stop illegal activity.