After a 2-year investigation, Hindenburg concluded that Block (formerly known as Square) “has systematically taken advantage of the demographics it claims to help”. The report accuses the company of facilitating “fraud against consumers and the government” as well as “avoiding regulation”. He further called Block’s loans and fees “predatory” in nature and designed to “mislead investors with inflated metrics.”
The US-based short seller said its research involved numerous interviews with former employees, partners and industry experts, as well as an in-depth review of regulatory and litigation filings and FOIA and public records.
Hindenburg report on the block
In a report published on March 23, Hindenburg claimed that Block “does not appear to offer a discernible advantage” over its main rival platforms such as PayPal/Venmo, Zelle or Apple. The report further states that the company has embraced non-compliance as a tactic to amplify its user base, capturing a highly underbanked segment of the population – criminals.
Hindenburg added that more than a dozen former CashApp employees have admitted to pressure from management, resulting in a disregard for anti-money laundering (AML) and Know Your Customer (KYC) provisions. He further claimed that Block allows fraudulent accounts which facilitate the growth of Cash App scams, generating illegitimate revenue and inflating user statistics.
The report also says Jack Dorsey, who stepped down as Twitter CEO in mid-2021, along with other Block insiders — James McKelvey, CFO Amrita Ahuja and Cash App director Brian Grassadonia — sold more than $1 billion worth of company stock. , the price of which rose “due to its facilitation of fraud”.
“We also believe that Jack Dorsey has built an empire and amassed a personal fortune of $5 billion, claiming to care deeply about the demographics he benefits from. Dorsey and senior executives having already sold more than $1 billion in equity during Block’s blistering pandemic, they made sure they would be fine no matter the outcome for everyone else.
The charges against Block also involved increasing its revenue and user growth by facilitating billions of dollars in Pandemic-Relief fraud. That’s when the company focused on the potential use of Cash App to fight the pandemic.
The report suggests that nearly 11 million people have activated the direct deposit feature to receive stimulus and unemployment benefits from the US government. As funds flowed into Cash App’s system, Block charged a hefty fee of 0.5% to 1.75% to speed up payments that would otherwise take 1-3 business days.
The report also says Block turned a blind eye to “obvious signs of fraud” despite warnings from former employees as well as the government.
Block hit back at the short seller, calling the report factually “inaccurate and misleading.” In his last update, the company revealed that it is working with the U.S. Securities and Exchange Commission (SEC) and considering legal action against Hindenburg Research. He further claimed that the report is “designed to mislead and confuse investors”.
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