(Finance) – After the Adani case, Hindenburg Research returns to the center of the global financial scene. The company run by Nathan Anderson, which makes money by short selling the companies he writes about, conducted a ‘two-year investigation on Blocka US financial services and mobile payment company led by Jack Dorsey.
Hindenburg argues that the “magic” behind Block’s business was not disruptive innovation, but rather the company’s willingness to facilitate fraud against consumers and the government, avoid regulationmask predatory loans and fees as a breakthrough technology and mislead investors with inflated metrics.
Most of the criticisms are aimed at “Cash App” platform. According to the research, Block (formerly known as Square) vastly overestimated the number of real users and underestimated customer acquisition costs. Former employees interviewed by Hindenburg estimated that 40-75% of account which they examined were fake, involved in fraud, or were additional accounts tied to a single individual. Additionally, former employees described how Cash App suppressed internal concerns and ignored users’ requests for help as criminal activity and fraud ran rampant on its platform.
Also, Hindenburg said he found Cash App probably has facilitated scammers taking advantage of government stimulus programs during the pandemic. The state of Massachusetts has sought to recover more than 69,000 unemployment benefits from Cash App accounts just four months into the pandemic, with suspicious transactions that were “disproportionate”, outpacing major banks like JP Morgan And Wells Fargodespite the latter banks having 4x-5x as many deposit accounts.
The report sent the stock tumbling by Block on Wall Street, forcing the company to issue a statement trying to halt selling on the stock. “We intend to work with the SEC ed explore legal action against Hindenburg Research for the factually inaccurate and misleading report it shared today on our Cash App activity,” reads a note. Block argues that Hindenburg is notorious for these types of attacks, “designed solely to allow short sellers to profit from a decline in the stock price”.
“We looked at the whole relationship in the context of our data e we believe it is designed to deceive and confuse investors We are a highly regulated publicly traded firm with regular communications and are confident in our products, relationships, compliance programs and controls. We won’t be distracted by typical short-seller tactics.”