After Adani storm, Hindenburg Research targets ex-Twitter CEO Jack Dorsey-led payments firm

Hindenburg research, the U.S. short-seller, behind a market rout of over $100 billion in Adani Group has now targeted Twitter co-founder Jack Dorsey's company Block.

"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.," the short seller said in a note published on its website.

"Our research involved dozens of interviews with former employees, partners, and industry experts, extensive review of regulatory and litigation records, and FOIA and public records requests," it added.

NEW FROM US:

Block—How Inflated User Metrics and "Frictionless" Fraud Facilitation Enabled Insiders To Cash Out Over Billionhttps://t.co/pScGE5QMnX $SQ

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— Hindenburg Research (@HindenburgRes) March 23, 2023

"Most analysts are 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," the US firm said.

The U.S. short-seller said in its latest report that former Block employees estimated that 40%-75% of accounts they reviewed were fake, involved in fraud, or were additional accounts tied to a single individual.

"Our research indicates, however, that Block has wildly overstated its genuine user counts and has understated its customer acquisition costs. Former employees estimated that 40%-75% of accounts they reviewed were fake, involved in fraud, or were additional accounts tied to a single individual," it added.

"Core to the issue is that Block has 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," it further added.

Hindenburg's next target is Block: 8 Major findings

Block has misled investors on key metrics, and embraced predatory offerings and compliance worst-practices in order to fuel growth and profit from facilitation of fraud against consumers and the government.

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.

Block has wildly overstated its genuine user counts and has understated its customer acquisition costs. Former employees estimated that 40%-75% of accounts they reviewed were fake, involved in fraud, or were additional accounts tied to a single individual.

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.

Block obfuscates how many individuals are on the Cash App platform by reporting misleading "transacting active" metrics filled with fake and duplicate accounts.

Examples of obvious distortions abound: "Jack Dorsey" has multiple fake accounts, including some that appear aimed at scamming Cash App users. "Elon Musk" and "Donald Trump" have dozens.

Amid Cash App's anti-compliance free-for-all, the app facilitated a massive wave of government COVID-relief payments. CEO Jack Dorsey Tweeted that users could get government payments through Cash App "immediately" with "no bank account needed" due to its frictionless technology.

Block reported a pandemic surge in user counts and revenue, ignoring the contribution of widespread fraudulent accounts and payments. The new business provided a sharp one-time increase to Block's stock, which rose 639% in 18 months during the pandemic.