Former Twitter CEO Jack Dorsey’s payment processing firm Block suffered a stock price drop of 15 percent this week after claims by Hindenburg Research that the company has facilitated fraud and inflated its user numbers. Researchers were reportedly able to set up a Cash App account in the name of former President Donald Trump, and even secure a Cash App card with his name on it.
CNBC reports that after Hindenburg Research released a damning report on Block, the payment company founded by former Twitter CEO Jack Dorsey, its stock value fell by nearly 15 percent.
Jack Dorsey and Friends (PRAKASH SINGH/Getty)
In its report, the research firm accused Block of artificially inflating the number of users for its Cash App product while allowing criminal activity to thrive on its platform with insufficient controls.
Hindenburg characterized Block’s internal systems as having a “Wild West” approach to compliance in its in-depth report. The research firm conducted a two-year investigation, concluding that Block has “systematically taken advantage of the demographics it claims to be helping.” According to the report, Block’s Cash App primarily catered to “unbanked” users who were allegedly engaged in illegal or criminal activity.
Numerous former employees were questioned as part of the short seller’s investigation. They claimed that despite widespread fraud and criminal activity on the platform, internal concerns were dismissed and user issues were not taken seriously. The report highlighted alleged financial misreporting and included screenshots of internal systems, employee messages, and other content.
Hindenburg claimed that up to $892 million, or 35 percent of Cash App’s revenue, came from interchange fees, which should be legally limited. According to the report, Block, formerly known as Square, got around this regulatory cap by sending the money through a small bank, a strategy that rival PayPal also used. Hindenburg added that Block might be involved in a related investigation based on a Freedom of Information Act (FOIA) request made to the Securities and Exchange Commission (SEC).
The research firm criticized Cash App’s methods when the U.S. government issued stimulus checks during the coronavirus pandemic. According to Hindenburg, management pressure resulted in a pattern of noncompliance with Know Your Customer (KYC) and anti-money laundering (AML) regulations. Hindenburg created accounts in the names of former president Donald Trump and Tesla CEO Elon Musk in order to test this theory. The company even acquired a Cash App card in Trump’s name.
According to the report, “former employees estimated that 40%-75% of accounts they reviewed were fake, involved in fraud, or were additional accounts tied to a single individual.” Hindenburg wrote: “In sum, we think 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.”
Block responded to the allegations on Thursday, stating its intention to work with the SEC and explore legal action against Hindenburg Research for their “factually inaccurate and misleading report.” In a press release, the company said, “We are a highly regulated public company with regular disclosures, and are confident in our products, reporting, compliance programs, and controls. We will not be distracted by typical short seller tactics.”
Read more at CNBC here.
Lucas Nolan is a reporter for Breitbart News covering issues of free speech and online censorship. Follow him on Twitter @LucasNolan
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