Hindenburg Research Targets Twitter Co-Founder Jack Dorsey's Payments Firm Block Over Inflated User Metrics

Hindenburg Report: Shares of Block fell 13 per cent in pre-market trading after the report.

Dorsey's Block is yet to respond to the allegations made in the report.

Source : Getty Images

Hindenburg Research, the New York City-based short-seller that accused Adani Group of stock manipulation and accounting fraud, has come out with its latest report, this time targeting Twitter co-founder Jack Dorsey-led payments firm Block Inc. A two-year investigation into Block, formerly known as Square Inc., has revealed that the company has taken advantage of the very people it "claims to be helping". According to the report, the company has facilitated fraud against consumers and the government, dressed up predatory loans and fees as revolutionary technology, and misled investors with inflated metrics. Block's approach to compliance was described by Hindenburg to be a "Wild West" one. 

Shares of Block fell over 18 per cent in pre-market trading after the report. Block "developed a 'frictionless' and 'magical' financial technology with a mission to empower the 'unbanked' and the 'underbanked'," the report stated.

Block, formerly known as Square, is a ~$44 billion market cap company that claims to have developed a “frictionless” and “magical” financial technology with a mission to empower the “unbanked” and the “underbanked”. $SQ

(2/n) pic.twitter.com/NmL0f2MzgW

— Hindenburg Research (@HindenburgRes) March 23, 2023

Titled 'Block: How Inflated User Metrics and “Frictionless” Fraud Facilitation Enabled Insiders To Cash Out Over $1 Billion,' the report involved interviews with former employees, partners, and industry experts. It found that the company has wildly overstated its genuine user counts and has understated its customer acquisition costs. The company's approach to compliance has made it easy for bad actors to create accounts for identity fraud and other scams, and then quickly extract stolen funds.

In addition, the platform has been said to be overrun with scam accounts and fake users.

The report also states that Cash App, Block's platform, was cited as the top app used in reported US sex trafficking and that the company facilitated a massive wave of government COVID-relief payments, which led to several states seeking to claw back suspected fraudulent payments.

Hindenburg claimed that former Block employees estimated that 40-75 per cent of accounts they reviewed were fake, involved in fraud, or were additional accounts tied to a single individual. "The magic behind Square has not been innovation, but its willingness to mislead investors, facilitate fraud, avoid regulation and dress up predatory products as revolutionary tech," the report further added.

Block has not yet responded to the allegations made in the report.

The forensic financial research firm grabbed the spotlight in India earlier this year after it published a report titled "Adani Group: How The World’s 3rd Richest Man Is Pulling The Largest Con In Corporate History". Following the report, Adani 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.