A report produced following a two-year investigation by Hindenburg Research claimed that digital payments company Block had “systematically taken advantage of the demographics it claims to serve,” alleging that the company inflated its user metrics and facilitated payment. fraud.
According to the March 23 report, Hindenburg Research claimed that Block’s practices allowed users to create fraudulent accounts, which favored many criminals who used the platform to steal funds. The report suggested that Block insiders, including the co-founders jack dorsey and James McKelvey, CFO Amrita Ahuja and Cash App director Brian Grassadonia had sold more than $1 billion of the firm’s stock, the price of which rose “on account of their facilitation of fraud.”
“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, disguise predatory lending and fees as revolutionary technology, and deceive investors with inflated metrics,” Hindenburg said. “Even when users were caught engaging in fraud or other prohibited activities, Block would blacklist the account without banning the user.”
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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
The report citing a change in business from Block beginning in the early days of the pandemic in 2020, when many people opened Cash App accounts to receive stimulus and unemployment payments from the US government. Interviews conducted by Hindenburg with former employees suggested that approximately 40% to 75% of the accounts reviewed were fake, implicated in fraud, or linked to a single individual.
“Like traditional financial services companies, (Block’s) key objective appears to be to disguise predatory loans and commissions as game-changers, avoid regulation, and adopt the worst compliance policies in order to profit from their facilitation of fraud against consumers and the government,” Hindenburg said. “The company appears to be betting that the consequences will be a ‘cost of doing business’ or at the very least come later.”
Hindenburg announced that he had taken a short position in Block as part of his report. At press time, Block’s share price has fallen more than 13% in the last 24 hours, up to $63.38.
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