Shares in Block, formally known as Square, fell more than 20% Thursday after Hindenburg Research accused the digital payment company of “wildly” overstating its user counts and taking advantage of low-income and minority consumers through predatory offerings.
In a short report Thursday, Hindenburg alleged that Block “obfuscates” how many individuals are on its Cash App platform by reporting misleading metrics filled with “fake and duplicate accounts.”
Former employees estimated that 40% to 75% of accounts they reviewed were fake, involved in fraud, or were additional accounts tied to a single individual, said Hindenburg, which claimed to have run a two-year investigation into Block, a company led by Twitter founder Jack Dorsey.
The short seller also accused Block of targeting the demographics it claims to serve — lower-income individuals and minorities — with “predatory loans and fees.” Hindenburg added that public records suggest Block has been facilitating pandemic relief fraud on its Cash App service.
Block hit back at Hindenburg, calling the short report “factually inaccurate and misleading” and saying it intends to explore legal action against the firm.
Cash App’s business model is built on “avoiding regulation, gouging users through excessive fees, and hyping up non-existent innovation,” alleged Hindenburg, which also slammed Block chief Dorsey for amassing “a $5-billion personal fortune” by taking advantage of Cash App’s users while “professing to care deeply” about them.
Block shares closed down nearly 15% Thursday in New York after plunging more than 22% in early trading. They were down another 4.6% in pre-market hours Friday.
Dorsey resigned as Twitter CEO in 2021 after activist hedge fund Elliott Management raised questions about his devotion to the social media platform given his role at Block, which was at the time called Square. Dorsey kept his 2.4% stake in Twitter after the company was taken private by Elon Musk last year.
In late January, Hindenburg accused Indian conglomerate Adani of accounting fraud and stock manipulation in a report that caused a litany of issues for the group and wiped out more than $150 billion from its market value within a month.
“Hindenburg is known for these types of attacks, which are designed solely to allow short sellers to profit from a declined stock price. We have reviewed the full report in the context of our own data and believe it’s designed to deceive and confuse investors,” said Block in its rebuttal Thursday afternoon.
Nate Anderson’s short outfit launched 10 campaigns in 2022 with an average one-month total campaign return of 23.85%, according to Insightia data.