A report following a two-year investigation by Hindenburg Research said digital payments firm Block "systematically exploited demographic data it claimed was helpful," accusing the company of inflating user metrics and facilitate fraudulent practices.
In a March 23 report, Hindenburg Research said Block's practices allowed users to set up fraudulent accounts, catering to the many criminals who used the platform to steal funds. The report suggests that Block insiders including co-founders Jack Dorsey and James McKelvey, CFO Amrita Ahuja, and Cash App manager Brian Grassadonia — have sold more than $1 billion in company stock at prices “in its facilitated Rise in support of "fraud. "
"The 'magic' behind Block's business is not disruptive innovation, but the company's willingness to facilitate defrauding consumers and governments, circumvent regulation, disguise predatory loans and fees as revolutionary technology, and mislead investors with inflated metrics ,"He said. Hindenburg. “Even if a user is found to be engaging in fraudulent or other prohibited activity, Block will blacklist that account without banning the user.”
The report cites a shift in Block's business that began early in the pandemic in 2020, when many people activated Cash App accounts to receive U.S. government stimulus and unemployment benefits. Hindenburg's interviews with former employees indicated that approximately 40% to 75% of the accounts reviewed were fake, involved fraud, or were associated with a single person.
“Like traditional financial services firms, [Block’s] focus appears to be on dressing up predatory lending and fees as revolutionary products, avoiding regulation and employing the worst possible compliance policies in order to facilitate fraud against consumers and governments ,” Hindenburg said. "The company appears to be betting that the fallout will either be a 'cost of doing business' or at least later." In a blog post responding to Hindenburg, Bullock called the report "factually inaccurate and misleading," adding that it planned to explore legal action.
“Hindenburg was known for these types of attacks, which were designed solely to allow short sellers to profit from falling stock prices,” Bullock said. "We have reviewed the full report against our own data and believe it was designed to deceive and confuse investors."
Hindenburg announced that it has taken a short position in Block. At the time of publication, Block’s stock price was down more than 13% over the past 24 hours to $63.38.
