After Cash App fraud claims, Jack Dorsey’s Block falls

Jack Dorsey’s Block is the online payments company that has been under attack by the short-seller, whose claims have shaved billions off the value of India’s Adani Group.

Block shares fell after Hindenburg Research accused them of exaggerating user counts and facilitating fraud in a “Wild West” approach to compliance.

Block dismissed Hindenburg’s 17,000-word report, calling it “factually incorrect and misleading”. He suggested that it was intended to “deceive” shareholders and promised to pursue legal action.

Block’s block position is a result of Hindenburg’s high-profile campaign to defeat Adani Group. This campaign triggered a $100Billion rout for the Indian conglomerate. The New York-based firm launched an attack against Nikola in 2020. Trevor Milton, Nikola’s founder, was convicted last autumn of fraud.

Block, previously known as Square is based out of San Francisco, California. It was co-founded by Dorsey and Jim McKelvey in 2009. Its chairman and “block leader” is Dorsey (46).

Hindenburg claimed that Block had “wildly exaggerated” the use of its Cash App payment system and underestimated the cost of acquiring customers in a dossier posted on its website. Hindenburg claimed that “former employees” estimated that between 40 to 75 percent of the users they reviewed were fraudulent, involved in fraud or had additional accounts linked to one user.

Hindenburg said that Block reports misleading “transacting active” metrics, including duplicate and fake accounts, to hide how many people are on the platform.

Block shares fell by 14.8 percent, or $10.76 to $61.89 in New York after the publication of the report.

Hindenburg claimed that Block “obfuscates” the number of users on Cash App platform.

Block stated in a statement that it will work with the Securities and Exchange Commission “to explore legal action against Hindenburg Research” for its misleading and factually incorrect report.

It said: “Hindenburg has a reputation for these types attacks. They are solely designed to allow short sellers to make a profit from a falling stock price. Based on our data, we believe the report is designed to confuse and deceive investors.

“We are a highly-regulated public company that makes regular disclosures and is confident in our products and compliance programs.

Hindenburg was founded in 2017 by Nathan Anderson. It is a forensic research firm that analyzes equity, credit, and derivatives. In order to make a profit, short-sellers borrow shares from companies in order to sell them at the market price.