Hindenburg Research shorts Block firm
Hindenburg Research, a US short seller, said on Thursday that it was shorting Jack Dorsey’s payments firm Block Inc because it was “wildly overstating its genuine user counts and understating its customer acquisition costs.” Block’s chairman, Jack Dorsey, was a co-founder of Twitter, the social media platform in which Hindenburg invested heavily last year.
The report comes two months after the US short seller’s explosive allegations against Adani Group wiped out more than $100 billion from the conglomerate’s market value.
Dorsey, who co-founded Block in his San Francisco apartment in 2009 with the goal of shaking up the credit card industry, is Block’s largest shareholder, holding approximately 8% of the company.
Until two years ago, the NYU dropout split his time between the payments firm and the law firm.
“After a two-year investigation, we have concluded that Block has systematically taken advantage of the demographics it claims to be helping,” the short seller wrote in a note published on its website. Following the report, Block’s stock fell 20% to $58.35 at 9:54 a.m. in US markets.
Hindenburg went on to say that Block, which has a $44 billion market cap, “obscures” how many people are on the Cash App platform by reporting misleading “transacting active” metrics that include fake and duplicate accounts.
Hinderburg went on to say that co-founders Jack Dorsey and James McKelvey sold over $1 billion in stock during the pandemic as the company’s share price skyrocketed.
Other executives, including CFO Amrita Ahuja and Cash App lead manager Brian Grassadonia, also dumped millions of dollars in stock, according to the report.
According to the research firm, Block’s Cash App thrived on serving ‘unbanked’ customers. Individuals can use the Cash App on their mobile devices to quickly receive and send money to others. In addition to mobile banking, Cash App’s platform allows users to purchase stock and Bitcoin.
According to the report, those unbanked customers were involved in criminal or illicit activity. Hindenburg also claimed that Cash App’s compliance programs were deficient, with numerous examples of “obvious distortions.”
According to the report, the short seller opened accounts in the names of former President Donald Trump and Tesla CEO Elon Musk, and then opened a Cash App card called the Cash Card under the “obviously fake Donald Trump account.”
The card bearing Trump’s name arrived in the mail “promptly.”
According to the report, “former employees estimated that 40%-75% of the accounts they reviewed were fake, involved in fraud, or were additional accounts tied to a single individual.”
Hindenburg claimed that multiple key flaws in Cash App’s compliance processes enabled billions of dollars in government payment fraud.