Hindenburg Accuses Jack Dorsey-Backed Fintech Block Inc Of Fraud, Cashing Out $1 Billion 

The latest target of the financial research firm is famous for its digital payment platform: Cash App
Hindenburg Research is a US-based forensic financial research firm and activist short-seller
Hindenburg Research is a US-based forensic financial research firm and activist short-seller

Hindenburg Research, which became widely known after it published a scathing report against Indian conglomerate Adani Group, has now come out with a new report. In its latest investigative report, the financial forensic research firm has levelled multiple serious allegations against US-based fintech firm Block Inc, founded by former Twitter CEO Jack Dorsey. 

Hindenburg’s latest target is famous for its digital payment platform: Cash App. In its report, the US-based researcher, who also acts as an activist short-seller, has accused Block of committing fraud and even insider trading. In its investigation that lasted over two years, Hindenburg claims to have found that those at the top management of Block managed to cash out over $1 billion via insider trades between March 2020 and December 2021. 

In the report, it is further claimed that Block Inc took advantage of vulnerable demographics by making claims of helping them but instead facilitated fraud against customers and the government by dressing up predatory loans. Block Inc is also accused of misleading  investors with inflated metrics.

"Our 2-year investigation has concluded that Block has systematically taken advantage of the demographics it claims to be helping. 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," Hindenburg said on its website.

Hindenburg claims that Block Inc has 65-75 per cent fundamental downside from current levels. In its report against Adani Group, Hindenburg had claimed a downside of 85 per cent and the shares of Adani-backed companies faced immense selling pressure in the immediate aftermath of the US-based short-seller's report.

Following this new report from Hindenburg Research, Block Inc. shares crashed 19 per cent to $58.38 during pre-market trading in the US.

In the report, Hindenburg also alleged that Block Inc has wildly overstated its genuine user counts and has understated its customer acquisition costs. 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.

"Block had embraced 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 said.

Another allegation levelled against Block Inc and its Cash App is that it allows for the presence of scam accounts and fake users. For example, Hindenburg cites the case of multiple fake accounts under the name of Jack Dorsey, the founder of Block Inc. The report says, "Jack Dorsey has multiple fake accounts, including some that appear aimed at scamming Cash App users.  “Elon Musk” and “Donald Trump” have dozens."

To test their hypothesis, Hindenburg created fake accounts under the names “Donald Trump” and “Elon Musk” and were apparently able to send and receive money easily.

The short-seller researcher also claims to have ordered a Cash Card under its fake Donald Trump account in an attempt to see if Cash App’s compliance would take issue. The card promptly arrived in the mail, said Hindenburg.

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