Hindenburg report: Dorsey’s Block misleads investors, aids fraud

NEW DELHI: Twitter former CEO Jack Dorsey-run Block’s shares nosedived on Thursday after short-seller Hindenburg Research revealed that the digital payment company facilitates fraud against consumers and the government, avoids regulation, dresses up predatory loans and fees as revolutionary technology, and misleads investors with inflated metrics.

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”.

“Our 2-year investigation has concluded that Block has systematically taken advantage of the demographics it claims to be helping,” said Hindenburg Research in its report, taking its latest short position on Block.

“We also believe Jack Dorsey has built an empire - and amassed a $5 billion personal fortune - professing to care deeply about the demographics he is taking advantage of,” it added.

Most analysts were excited about the post-pandemic surge of Block’s Cash App platform, with expectations that its 51 million monthly transacting active users and low customer acquisition costs will drive high margin growth and serve as a future platform to offer new products.

“Our research indicates, however, that Block has wildly overstated its genuine user counts and has understated its customer acquisition costs,” the report alleged.

Former 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, it claimed.

Block or Dorsey were yet to reach to the Hindenburg report.

Block embraced one traditionally very “underbanked” segment of the population: criminals.

“The company’s ‘Wild West’ approach to compliance made it easy for bad actors to mass-create accounts for identity fraud and other scams, then extract stolen funds quickly,” the report mentioned.

Even when users were caught engaging in fraud or other prohibited activity, Block blacklisted the account without banning the user. A former customer service representative shared screenshots showing how blacklisted accounts were regularly associated with dozens or hundreds of other active accounts suspected of fraud.