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Block shares plunge 15% after short seller Hindenburg says Jack Dorsey’s company facilitates fraud



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Shares of Jack Dorsey’s Block plunged nearly 15% by Thursday’s close after short seller Hindenburg Research announced that the payment company was its latest short position, alleging that Block allowed criminal activity to operate with lax controls and “highly” inflates Cash App’s transacting user base, a key metric of performance.Hindenburg described Block’s internal systems as a “‘Wild West’ approach to compliance.”related investing news 32 minutes ago”Our 2-year investigation has concluded that Block has systematically taken advantage of the demographics it claims to be helping,” Hindenburg said in its report. The research firm said Block’s Cash App thrived on serving “unbanked” customers.The report alleges those unbanked customers were involved in criminal or illicit activity. Hindenburg also alleged that Cash App’s compliance programs were deficient.Jack Dorsey, co-founder and chief executive officer of Twitter Inc. and Square Inc., speaks during the Bitcoin 2021 conference in Miami, Florida, U.S., on Friday, June 4, 2021.Eva Marie Uzcategui | Bloomberg | Getty ImagesAs part of its two-year investigation, Hindenburg spoke with multiple former employees who described how internal concerns were suppressed and user concerns were ignored, even as alleged “criminal activity and fraud ran rampant on its platform.”The firm’s extensive report includes screenshots of internal systems and employee messages. It also highlighted alleged financial misreporting.Up to 35% of Cash App’s revenue is derived from interchange fees, Hindenburg alleged. That’s around $892 million in revenue that the short seller said should be capped by law.But Block, formerly known as Square, avoids that regulatory cap imposed on large financial institutions by routing the revenue through a small bank, Hindenburg alleged.The small-bank routing method is one employed by Block rival PayPal, Hindenburg claimed, and which prompted a Securities and Exchange Commission probe.”A Freedom of Information Act (FOIA) request we filed with the SEC indicates that Block may be part of a similar investigation,” Hindenburg wrote.PayPal did not immediately respond to a request for comment.Hindenburg took issue with Cash App’s practices during the Covid pandemic, when the government issued stimulus checks to qualified American adults. The report alleges that the lockdowns “posed an existential threat” to Block’s critical mercha …

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