Jack Dorsey’s fintech company Block is accused of facilitating criminal activity
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 issued on Thursday (March 23).
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Hindenburg, who most recently short-sold Adani Group and wiped $120 billion off the conglomerate’s market value, also alleged that Block’s lax oversight is allowing 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 taken advantage of the demographics it claims to help,” the report said, criticizing Block’s predatory strategy of targeting millennials, minorities and members of Gen Z with high fees and loan rates.
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,” the report added to.
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 exposed flaws in Block’s Cash app
One way Hindenburg revealed Cash App’s lack of regulation was by registering an account and receiving a debit card with President Donald Trump’s name on it.
The report found that up to 35% of Cash App’s annual revenue (or $892 million) comes from interchange fees — a transaction cost charged to merchants every time a consumer uses a debit or credit card. This violates the regulatory cap on large financial services, Hindenburg argued, adding that Block avoids these regulatory fees by directing revenue to a small bank.
The Hindenburg report also said that Cash App is purposefully avoiding enforcing money laundering laws, in order to increase its 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 does Block own?
🤑 Cash App: The focus of Hindenburg’s accusations, Cash App is a mobile payment service similar to Venmo or Paypal, aimed at Gen Z. In 2021, the service reported 70 million users.
🖥️ Weebly: Like WordPress or Squarespace, Weebly is a do-it-yourself 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 mid-sized businesses that want a third-party solution to accept digital payments and keep track of receipts.
🎵 Tide: A 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. Afterpay is marketed towards young people, with millennials making up three quarters of all users.
However, Afterpay has previously been criticized for charging harsh late fees on payments and for encouraging young people to enter cycles of debt in pursuit of luxury consumer goods. Afterpay has faced a number of class action lawsuits from consumers who claim that the company misrepresents its fee structure in its marketing.
In addition, Australian financial regulators began investigating Afterpay in 2019, ordering an audit over concerns that it was not adequately complying with anti-money laundering and anti-terrorist financing laws. Regulators announced the end of the audit a year later, saying the company had completed the remediation necessary to ensure future compliance.
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💵 Billionaire Ray Dalio joins Cash App’s campaign to become Gen Z’s bank
🦤 Jack Dorsey texted Elon Musk to say that Twitter should never have been a company
👋 Hello, Block Head
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