A notorious short seller has targeted Block, Jack Dorsey’s payments company, and released a report accusing the company of misleading investors and adopting a criminal user base.
Hindenburg Research disclosed its short position in Block on Thursday and published the results of a two-year investigation, alleging that the company “misled investors on key metrics and adopted predatory bidding and worst compliance practices to fuel growth.”
Block’s shares fell nearly 15 percent on the day, and Dorsey’s net worth took a hit of $562 million, falling 11 percent to $4.4 billion, according to the Bloomberg Billionaires Index.
Block responded in a statement to DailyMail.com, saying he would explore legal action against the short seller for its “misleading and factually inaccurate reporting” which was “designed to mislead and confuse investors.”
“Hindenburg is notorious for these types of attacks, which are designed solely to allow short sellers to profit from falling stock prices,” the company added. “We will not be distracted by typical short seller tactics.”
Block founder Jack Dorsey (above) is being targeted by Hindenburg Research, which released a report accusing his company of misleading investors and adopting a criminal user base.
Block’s shares fell nearly 15 percent on the day, and Dorsey’s net worth took a hit of $562 million, falling 11 percent to $4.4 billion.
Far from being an impartial watchdog, Hindenburg benefits from taking large positions in the companies he reports on, betting their shares will plunge as markets digest the allegations in his investigation.
However, Hindenburg’s investigation previously led to criminal charges and convictions, including that of Nikola founder Trevor Milton, who was convicted last year of misleading investors with exaggerated claims about his electric truck company.
He latest Hindenburg report it includes sweeping allegations against Block, the payments company formerly known as Square, which also owns the popular Cash App smartphone payment app.
Many of Hindenburg’s claims center on the alleged rampant criminal use of Cash App for drug deals, sex trafficking, and even murder-for-hire.
The report quoted rapper 22Gz, who boasted in the lyrics of his 2020 song Cash App: “I paid hitters through Cash App.” Hindenburg noted that Block sponsored a giveaway to promote the song’s music video.
Last June, 22Gz, whose real name is Jeffrey Mark Alexander, was arrested on attempted murder charges in New York City. That case is still pending.
Hindenburg cited a group of rappers who openly boast of using Cash App for criminal purposes in their songs, as well as real-world evidence that the payment app is used in criminal schemes, including government benefits fraud.
In one case, rapper Nuke Bizzle was convicted of committing COVID stimulus fraud, using Cash App as the payment mechanism. He was arrested just weeks after bragging about the scheme in his letters.
“Block has embraced a traditionally highly ‘underbanked’ segment of the population: criminals,” Hindenburg wrote in the report.
Hindenburg, founded by Nathan Anderson (above), profits from taking large positions in the companies it reports on, betting their shares will crash.
Rapper 22Gz bragged in the lyrics of his 2020 song Cash App: “I paid hitters through Cash App.” He was later charged with attempted murder.
Fontrell Antonio Baines, the 33-year-old rapper known as ‘Nuke Bizzle,’ was sentenced to six years in prison after admitting to stealing $1.2 million in COVID relief funds. He bragged about the scheme, which prosecutors say was based on Cash App, in a music video weeks before his arrest.
“The company’s ‘Wild West’ approach to compliance made it easy for bad guys to create accounts en masse for identity fraud and other scams, then quickly extract the stolen funds,” the research firm added.
Hindenburg also claimed that his analysts were able to easily create accounts posing as public figures such as Elon Musk and Donald Trump, and were even able to request a cash card in Trump’s name.
Scammers can take advantage of this weak identity check by creating fake accounts to solicit donations or impersonate legitimate businesses, according to Hindenburg.
“The ‘magic’ behind Block’s business has not been disruptive innovation, but the company’s willingness to facilitate fraud against consumers and the government, avoid regulation, disguise predatory lending and fees as breakthrough technology, and fool investors with inflated metrics,” the report states.
Hindenburg also said that Block “obfuscates” how many people are on the Cash App platform by reporting “active deceptive transaction metrics full of fake and duplicate accounts.”
Block said in regulatory disclosures that Cash App had 51 million monthly active transactions at the end of 2022, a year-over-year increase of 16 percent.
The short seller also pointed to a number of large stock insiders in recent years, noting that co-founders Dorsey and James McKelvey collectively sold more than $1 billion worth of shares during the pandemic as the stock price of the company was skyrocketing.
Other executives, including chief financial officer Amrita Ahuja and Cash App chief manager Brian Grassadonia, also dumped millions of dollars worth of stock, the report added.
Hindenburg said his analysts were able to easily create accounts posing as Elon Musk and Donald Trump, and were even able to request a cash card in Trump’s name.
Wall Street analysts said the Cash App allegations had the most potential to attract regulatory scrutiny and hurt Block’s profitability, if substantiated.
“What really worries me is the Cash App, the fraud allegations, multiple accounts, account openings and fake names. And it doesn’t seem like that’s something they allow,” Christopher Brendler, a senior analyst at DA Davidson & Co, told Reuters.
‘(There is) some evidence in the report that this is happening. So, you know, I think that’s the most damaging part of the report,” she added.
Block criticized the allegations as false.
“We have reviewed the full report in the context of our own data and believe it is designed to mislead and confuse investors,” the company statement said.
“We are a highly regulated public company with regular disclosures and are confident in our products, reporting, compliance programs and controls.”