Hindenburg Research shorts Jack Dorsey's Block, accuses it of $1 billion fraud

Former Twitter CEO Jack Dorsey-run Block is a $44 billion market cap company, which Hindenburg claimed “obfuscates” customer numbers by misleading “transacting active” metrics with fake accounts

Jack Dorsey
Jack Dorsey

NH Economic Bureau

Hindenburg Research, the short-seller whose research claims on Gautam Adani led to a $150 billion reduction in his net worth, is now accusing Jack Dorsey's mobile payment company Block of "facilitating fraud against customers and the authorities."

On Thursday, Hindenburg claimed that Block had misrepresented its user count and underestimated its customer acquisition expenses. Shortly after the opening bell, shares of Block, the company that created the famous Cash App mobile payment facilitator, fell around 20 per cent.

Block, which used to be called Square, has a $44 billion market cap with media reports talking about its claims to have a "magical" and "frictionless" financial technology to help the "unbanked" and "underbanked."

The Hindenburg report said, "Our research shows, however, that Block has wildly overstated the number of real users and understated the cost of getting new customers."

"After a two-year investigation, we've found that Block has taken advantage of the people it says it's helping," Hindenburg Research said in its latest report, which took a negative stance on Block.

"We also think that Jack Dorsey has built an empire and made himself a $5 billion fortune by saying he cares deeply about the demographics he is taking advantage of," the report added.

As per news reports, most analysts were excited about the growth of Block's Cash App platform after the pandemic. It was thought that the platform's 51 million monthly transacting active users and low customer acquisition costs would lead to high margin growth and help Block offer new products in the future.

The Hindenburg report on Thursday said, "Our research shows, however, that Block has wildly overstated the number of real users and understated the cost of getting new customers."

It was said that former employees thought that 40–75 per cent of the accounts they looked at were fake, involved in fraud, or were just extra accounts for the same person.

Hindenburg claimed that Block co-founders Dorsey and James McKelvey sold more than $1 billion worth of stock when the company's share price went up during the pandemic.

The report said that other executives, like Amrita Ahuja, who was in charge of finance, and Brian Grassadonia, who was in charge of Cash App, also sold millions of dollars worth of stock.

Before releasing its findings on Thursday morning, Hindenburg gave a hint that it would soon release "a new big report."

As of Thursday morning, the tweet from Wednesday had more than 31,000 likes and 6 million views.

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