Hindenburg accuses Block, Jack Dorsey’s technology company, of fraud

Hindenburg Research announced that Block – the sprawling fintech company founded by former Twitter chief Jack Dorsey – was the latest short, after accusing the company of widespread fraud in its performance metrics.

Block (formerly known as Square) is misleading investors by exaggerating user numbers with “fake and duplicate accounts,” Hindenburg claimed in a report released Thursday (March 23).

Hindenburg, who most recently short-sold Adani Group and wiped out $120 billion in the conglomerate’s market value, also alleged that Block’s lax oversight allowed criminal activity to flourish on its money-sharing applications such as Cash App. Block’s stock price fell 12% on the news, as of 11 a.m. ET.

Nathan Anderson’s Hindenburg has accused Block of being ‘predatory’

Hindenurg’s report included a litany of financial crimes and unethical practices. “Block has systematically exploited the demographics it claims to help,” the report said, hitting back at Block’s predatory practices strategy for targeting millennials, minorities, and members of Gno Z with high fees and loan interest.

The “magic” behind Block’s business has not been disruptive innovation, but rather the company’s willingness to facilitate consumer and government fraud, avoid regulation, dress up predatory lending and fees as revolutionary technology, and mislead investors with inflated calculations,” report added.

Hindenburg also pointed to Cash App’s lack of oversight of unbanked customers, many of whom allegedly use the service for criminal or illegal activity. Several former employees revealed to Hindenburg that internal concerns about such activity were suppressed by management.

How Hindenburg revealed error in Blocks Cash app

A way that Hindenburg revealed Cash App’s lack of regulation was by registering an account and receiving a debit card using the name of the president Donald Trump.

The report found that up to 35% of Cash App’s annual revenue (or $892 million) comes from interchange fees—a transaction cost are charged to merchants every time a consumer uses a debit or credit card. This is breaking profit limit regulations on major financial services, Hindenburg claimed, adding that Block avoids these regulatory caps by directing the proceeds to a small bank.

Hindenburg The report also said that Cash App purposefully avoids enforcing money laundering laws such as to grow his user base. Former employees estimated that anywhere from 40% to 75% of the accounts they reviewed were fake.

Representatives for Block were not immediately available for comment.

What services own Block?

🤑 Cash App: The focus of Hindenburg’s accusationsCash App is a mobile payment service similar to Venmo or Paypal, targeting Gen Z. In 2021, the service reported 70 million users.

🖥️ Weebly: Like WordPress or Squarespace, Weebly is a DIY website builder. It is one of the older services of its kind, founded in 2007.

◼️ The square: A financial services platform, Square’s target consumers are small to medium-sized enterprises who want a third-party solution to accept digital payments and keep track of receipts.

🎵 Tide: ONE music streaming service founded by a Swedish company in 2014, Tidal has the support of several prominent celebrities such as Jay-Z. It is designed to offer higher quality soundtracks than the competition.

What’s the deal with Afterpay, Block’s controversial buy-now, pay-later service?

One of Block’s most popular services is Afterpay, a ubiquitous buy-now-pay-later company that allows consumers to spread out payments on even smaller purchases. Postpayment marketed towards young people, with millennials making up three quarters of all users.

However, postpaid has been criticized in the past for toppings hard late payment fees and for encouraging young people to enter cycles of debt in pursuit of luxury consumer goods. Late payment has met a variety of class-lawsuit from consumers who claim that the company misrepresents its fee structure in its marketing.

Also Australian financial regulators began to investigate Arrears in 2019, orders an audit over concerns that it did not adequately comply with anti-money laundering and anti-terrorist financing laws. Regulators announced the end of the oversight a year later, states that the company had completed remediation necessary to ensure future compliance.

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👋 Hello, Blockhead