A report following a two-year investigation from Hindenburg Research claimed digital payments company Block had โsystematically taken advantage of the demographics it claims to be helping,โ alleging the firm inflated its user metrics and facilitated fraud.
According to the March 23 report, Hindenburg Research said Blockโs practices allowed users to set up fraudulent accounts, catering to many criminals who used the platform to steal funds. The report suggested that Block insiders, including co-founders Jack Dorsey and James McKelvey, chief financial officer Amrita Ahuja, and Cash App manager Brian Grassadonia, had sold more than $1 billion of the firmโs stock, whose price rose โon the back of its facilitation of fraud.โ
โThe โmagicโ behind Blockโs business has not been disruptive innovation, but rather the companyโs willingness to facilitate fraud against consumers and the government, avoid regulation, dress up predatory loans and fees as revolutionary technology, and mislead investors with inflated metrics,โ said Hindenburg. โEven when users were caught engaging in fraud or other prohibited activity, Block blacklisted the account without banning the user.โ
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BlockโHow Inflated User Metrics and “Frictionless” Fraud Facilitation Enabled Insiders To Cash Out Over $1 Billionhttps://t.co/pScGE5QMnX $SQ
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โ Hindenburg Research (@HindenburgRes) March 23, 2023
The report cited a shift in Blockโs business starting during the early days of the pandemic in 2020, when many people activated Cash App accounts to receive stimulus and unemployment payments from the United States government. Interviews with former employees by Hindenburg suggested that roughly 40% to 75% of reviewed accounts were fake, involved in fraud, or tied to a single individual.
Related: Jack Dorseyโs Block sues Bitcoinโ.com for trademark infringement
“Like traditional financial services companies, [Block’s] key focus seems to be on dressing up predatory loans and fees as revolutionary products, avoiding regulation and embracing worst-of-breed compliance policies in order to profit from its facilitation of fraud against consumers and the government,” said Hindenburg. “The company seems to be betting that the consequences will either be a โcost of doing businessโ or at the very least, come later.”
Hindenburg announced it had taken a short position in Block as part of its report. At the time of publication, the price of Blockโs stock has dropped more than 13% in the last 24 hours to $63.38.
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