US short-seller Hindenburg Research is back in the headlines, two months after accusing Indian conglomerate Adani Group of brazen stock manipulation and accounting fraud. Hindenburg Research has now claimed fraud in Twitter founder Jack Dorsey's payments firm Block Inc.


The New York-based forensic financial research firm said Dorsey's firm overstated its user counts and understated its customer acquisition costs.


"Our 2-year investigation has concluded that Block has systematically taken advantage of the demographics it claims to be helping," the US-based short seller said.


"The magic behind Block's business has not been disruptive innovation, but rather the company’s 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," the report said.


READ | Hindenburg Research Claims Jack Dorsey's Payments Firm Block Overstated User Counts


What Did Hindenburg Research Say On Adani Group?


Hindenburg Research grabbed the spotlight in India earlier this year after it published a damning report titled "Adani Group: How The World’s 3rd Richest Man Is Pulling The Largest Con In Corporate History".


In the report, said to be based on a two-year investigation, the firm alleged that Adani Group engaged in brazen stock manipulation and accounting fraud over the course of decades. The report has created a political furore just a year ahead of the crucial 2024 Lok Sabha election, with the Opposition hitting out at the ruling BJP over Gautam Adani's alleged close ties with Prime Minister Narendra Modi.


Adani has now lost his throne as Asia's and India's richest, with the fallout wiping out more than $150 billion from Adani Group's market value since January 24.


"Gautam Adani, Founder and Chairman of the Adani Group, has amassed a net worth of roughly $120 billion, adding over $100 billion in the past 3 years largely through stock price appreciation in the group's 7 key listed companies, which have spiked an average of 819% in that period," the report said.


The Adani Group had rubbished the allegation of stock manipulation.


READ | Everything You Need To Know About The Hindenburg Report That Impacted India's Stock Market


What Is Hindenburg Research?


On its website, Hindenburg Research describes itself as a forensic financial research company and "activist short seller". It focuses on analysing accounting irregularities, bad actors in management, undisclosed transactions, illegal/unethical business or financial reporting practices. Basically, to sum it up, the firm looks for corruption or fraud in the business world and investigates them.


According to a Bloomberg report, the firm employs 10 people, mostly former journalists and analysts.


The name of the company comes from the German Hindenburg passenger airship that caught fire and was destroyed during a docking attempt at an airfield in New Jersey in 1937. Hindenburg claims it looks for similar disasters in financial markets.  


Before the report on Dorsey's Block, Hindenburg Research pointed out frauds in 17 companies in the past six years, with the most notable being electric-truck maker Nikola Corporation and Adani Group.


Who Operates Hindenburg Research?


Based in New York in the US, the firm was founded in 2017 by Nate Anderson, 38, a chartered financial analyst and a chartered alternative investment analyst.


Anderson was born in a small town in Connecticut and completed his degree in international business from the University of Connecticut.


He then went to study in Israel and also simultaneously worked as a paramedic. His first brush with finance came when he started working at financial data company FactSet Research Systems.


His interest in investigative research grew when he was working with Blue Heron Capital and Tangent Capital. As per his LinkedIn profile, his role involved studying hedge funds and investment opportunities for high-net-worth individuals.


Anderson's first success came when he unearthed fraud at hedge fund Platinum Partners along with another financial fraud investigator, his mentor Harry Markopolos. Markopolos is best known for blowing the whistle on Bernard Madoff's Ponzi scheme.


What Is A Short Seller? How Hindenburg Profits?


In simple terms, a short seller speculates the decline in the prices of a company's stocks and makes money when the price falls.


Essentially, a short seller does not own the stocks they are selling and bets on a decline in their price in the future. It entails a huge risk. Short sellers create an important system of checks and balances in markets.


After digging out probable wrongdoings in a firm, Hindenburg usually publishes a report and bets against the company, hoping to make a profit when the targeted stock declines because of the negative attention from the report. This is how Hindenburg makes money.


Hindenburg had also made a bet on a decline in Twitter's share price in 2022 when Tesla CEO Elon Musk first offered to buy the microblogging company.


Which Companies Have Hindenburg Targeted In The Past?


Hindenburg Research has a track record of exposing corporate wrongdoings. The most famous case was of electric-truck maker Nikola Corporation in which Hindenburg revealed a vast array of alleged lies and deceptions by Nikola in the years leading up to its proposed partnership with General Motors.


The 2020 report, Nikola: How to Parlay An Ocean of Lies Into a Partnership With the Largest Auto OEM in America, accused Nikola of staging a video to downplay skepticism about its truck that showed the vehicle cruising on a road. However, Hindenburg claimed the video was actually just showing the truck rolling down a hill after getting towed to the top.


The report saw Nikola founder and executive chairman Trevor Milton resigning from the company. It also saw quick scrutiny from the government and investors, with the company receiving subpoenas from the US Attorney's office and the Securities and Exchange Commission (SEC).


In 2021, Nikola agreed to shell out $125 million to settle SEC charges after admitting that it defrauded investors by misleading them about its products, technical advancements, and commercial prospects, AP reported.


The research firm also pointed out alleged fraud in WINS Finance, alleging that a company subsidiary in China was subject to a RMB 350 million asset freeze that had not been disclosed to US investors. Hindenburg flagged that WINS Finance's parent firm, which owned 67.7 per cent of WINS' equity, had already been declared insolvent in China.


Following the report, about four months later, in October 2020, NASDAQ delisted WINS due to the undisclosed asset freeze, according to Hindenburg's website.


Another firm Hindenburg targeted was China Metal Resources Utilization, which it called it a "zombie company". Hindenburg showed how the company was under severe financial distress and identified numerous accounting irregularities, including evidence of undisclosed related party transactions.


Months after the Hindenburg report, Ernst and Young withdrew as auditor. Shares of the firm fell more than 90 per cent.