Block said he is working with the SEC on how to “explore legal action against Hindenburg Research over the inaccurate and misleading report.”
US multinational fintech giant Block Inc (NYSE: SQ) is currently under intense pressure following a condemnation report from the short seller, Hindenburg Research. According to the report, Hindenburg Research accused Block of running a fraud operation that preys on the demographic he claims to serve, the unbanked.
Known for such reporting, Hindenburg said his investigation into Block Inc spanned two years and featured interviews with current and former employees. The report noted that Block has a habit of inflating its user metrics, a core indication of growth, and profits from it.
“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 the company’s willingness to facilitate fraud against consumers and the government, avoid regulation, disguise predatory lending and fees as breakthrough technology, and deceive investors. with inflated metrics. read
Hindenburg also alleges that Block maintains weak compliance regarding its Know-Your-Customer (KYC) provisions. In an attempt to prove this, the research firm said it opened a fake Cash App account in the names of former President Donald Trump and Tesla CEO Elon Musk.
The firm said that the accounts were not only opened, but the associated payment cards were requested and that the fake Donald Trump account was delivered by mail. According to the report,
“Former employees estimated that between 40% and 75% of the accounts they reviewed were fake, involved in fraud, or were additional accounts linked to a single person.”
Following the damning findings, Hindenburg Research said it has taken a short position in Block shares. Since the report came out, the company’s shares have been on a downward spiral, closing down 14.82% at $61.88 at the close of business on Thursday.
Block Inc’s response to the Hindenburg investigation
The disclosures made by Hindenburg Research have received a very strong rebuttal from the company. taking note which is a heavily regulated company that takes its compliance obligations very seriously.
“We are a highly regulated public company with regular disclosures and we are confident in our products, reporting, compliance programs and controls. We will not be distracted by typical short selling tactics,” Block added.
The company said it is working with the US Securities and Exchange Commission (SEC) on how to “explore legal action against Hindenburg Research for the inaccurate and misleading report they shared today about our Cash App business.” the company said in a press release. release.
While Hindenburg Research’s actions and approach may be detrimental to investors, it is highly likely to trigger an intense investigation by the regulator in the near future.
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Benjamin Godfrey is a blockchain enthusiast and journalist who enjoys writing about the real-life applications of blockchain technology and innovations to drive mainstream acceptance and global integration of emerging technology. His desire to educate people about cryptocurrencies inspires his contributions to renowned blockchain-based sites and media. Benjamin Godfrey is a lover of sports and agriculture.
