After a 2-year investigation, Hindenburg concluded that Block (formerly known as Square) “systematically took advantage of the demographics it claims to be helping.” The report accused the company of facilitating “fraud against consumers and the government” as well as “avoiding regulation.” Furthermore, he called Block’s loans and fees “predatory” in nature and designed to “mislead investors with inflated metrics.”
The US-based short seller said its investigation involved numerous interviews with former employees, partners and industry experts, as well as a thorough review of regulatory and litigation records and public records and FOIA requests.
Hindenburg report on block
in a report Posted on March 23, Hindenburg claimed that Block “does not appear to offer a discernible advantage” over its main rival platforms, such as PayPal/Venmo, Zelle or Apple. The report further said that the company adopted the breach as a tactic to broaden its user base, capturing a highly underbanked segment of the population: criminals.
Hindenburg added that more than a dozen former CashApp employees admitted to management pressure, which resulted in a disregard for anti-money laundering (AML) and Know Your Customer (KYC) provisions. In addition, he claimed that Block enabled fraudulent accounts that facilitated the growth of Cash App scams, generating illegitimate revenue and inflating user metrics.
The report also stated that Jack Dorsey, who stepped down as Twitter CEO in mid-2021, along with other Block members (James McKelvey, CFO Amrita Ahuja, and Cash App manager Brian Grassadonia) sold more than 1 billion. dollars in company stock. , whose price increased “as a result of his facilitation of fraud.”
“We also believe that Jack Dorsey built an empire, and amassed a personal fortune of $5 billion, and claims to care deeply about the demographics he is taking advantage of. Since Dorsey and the top executives have already sold more than $1 billion worth of stock in Block’s meteoric pandemic, they’ve made sure they’ll be fine regardless of the outcome for everyone else.”
The allegations leveled against Block also involved increasing its revenue and user growth by facilitating billions of dollars in fraud from Pandemic-Relief. That’s when the company shifted its focus to Cash App’s potential use in pandemic relief.
The report suggests that nearly 11 million people turned on direct deposit to receive stimulus and unemployment payments from the US government. While the funds flooded the Cash App system, Block charged a hefty 0.5% fee. 1.75% for expediting payments that would otherwise take 1-3 business days.
The report also stated that Block turned a blind eye to “glaring signs of fraud” despite receiving warnings from former employees and the government.
block replies
Block responded to the short seller, calling the report “inaccurate and misleading.” in his last update, the firm revealed that it works with the US Securities and Exchange Commission (SEC), in addition to exploring legal action against Hindenburg Research. In addition, he stated that the report is “designed to mislead and confuse investors.”
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