As a short seller questioned the business’s user statistics and said it was using predatory techniques, shares of the payments startup formerly known as Square dropped by roughly 15% on Thursday.
A two-year investigation by Hindenburg Research into Block Inc. revealed that the corporation “obfuscates” the real user numbers for its Cash App service by presenting false metrics “packed with fraudulent and duplicate accounts.” Additionally, it said that the company used “predatory loans and fees” to target minorities and lower-income individuals, two groups it professes to serve.
Block stated in a statement that the Hindenburg report is “factually false and deceptive” and “intended to deceive and confuse investors.” Furthermore disclosed was the company’s intention to take legal action against the short seller.
As a stock declines, short sellers make money. To achieve this, they borrow equities that they think are overpriced, sell them, and then repurchase them at a cheaper cost.
The price of Block’s shares dropped as much as 22% on Thursday morning before somewhat rising to settle at $61.88. Block’s stock had its biggest percentage decrease in a single day since May 2022, wiping down over $6.5 billion in market value and wiping out gains made up to that point in the year. Shares of Block are currently down almost 78% from their peak in August 2021.
Though its Cash App peer-to-peer payment service has been a key driver of the company’s growth in recent years, Block is best known for its trademark white credit-card readers that enable businesses accept payments with a smartphone or tablet. During the Covid-19 outbreak, Block made it simple for consumers to obtain stimulus payments and unemployment benefits using the Cash App, which greatly increased its popularity.
As of December, Cash App had more than 51 million active monthly users, more than twice as many as in the pre-epidemic period. By 2022, inflows had increased to $203 billion, roughly four times what it had in 2019. Cash App’s gross profit in the fourth quarter was higher than Block’s Square segment, which focuses on small businesses.
Block’s CEO and co-founder, Jack Dorsey, has set the objective of making Cash App its users’ go-to banking application. Users of Cash App can send money to one other using their smartphones, make purchases using prepaid debit cards, file their taxes, get their paychecks, invest in bitcoin, and buy individual shares of stocks. On a teleconference with Wall Street analysts in November, Mr. Dorsey claimed that Cash App contained “everything you need in your financial life.”
According to Hindenburg, Cash App’s rise was significantly fueled by the pandemic by facilitating shady payments. A bank that collaborates with Cash App had a disproportionately high amount of questionable payments for unemployment benefits, according to public documents Hindenburg requested from states including Ohio and Massachusetts. According to Hindenburg’s interviews with former Cash App employees, a sizable number of Cash App accounts may be false, arouse suspicions of fraud, or be linked to a single genuine person.
The compliance checks in Cash App were still another thing Hindenburg was after. Law enforcement agencies claimed in court records referenced by the short seller that criminals used Cash App to launder narcotics money or pay for sex trafficking. In fact, Cash App is the name of a Baltimore gang, according to Hindenburg. Gang members who faced narcotics accusations entered guilty pleas.
A 0.5% to 1.75% fee that Cash App charges users who wish to rapidly move money out of their accounts rather than waiting up to three days for a bank transfer is one of its key sources of income. Hindenburg claimed that Cash App’s “immediate deposit” feature was a means for scammers to move money quickly and at a high cost to the app’s legitimate customers, amounting to an annual percentage rate of almost 205% at the middle of its charge scale.
Block has adopted predatory products and compliance worst-practices in order to fuel expansion and profit, and it has misled investors on crucial metrics “According to Hindenburg’s analysis.
Hindenburg drew attention to investigations into Cash App’s business practises, particularly the treatment of client complaints and disputes, conducted by the Consumer Financial Protection Bureau and numerous state attorneys general. Block made those disclosures in securities filings and criticised the CFPB’s request for information as being “overly intrusive.” “in court records.
Other targets of Nathan Anderson’s Hindenburg included the electric truck manufacturer Nikola Corp., whose founder was eventually found guilty of securities fraud, and the Indian giant Adani Group.
Nikola alleged that the information in Hindenburg’s report was false. Adani has responded to the short seller’s report with a 413-page reply, claiming that Hindenburg’s allegations are unfounded. Block has adopted predatory products and compliance worst-practices in order to fuel expansion and profit, and it has misled investors on crucial metrics “According to Hindenburg’s analysis.
Hindenburg drew attention to investigations into Cash App’s business practises, particularly the treatment of client complaints and disputes, conducted by the Consumer Financial Protection Bureau and numerous state attorneys general. Block made those disclosures in securities filings and criticised the CFPB’s request for information as being “overly intrusive.” “in court records.
Other targets of Nathan Anderson’s Hindenburg included the electric truck manufacturer Nikola Corp., whose founder was eventually found guilty of securities fraud, and the Indian giant Adani Group.
Nikola alleged that the information in Hindenburg’s report was false. Adani has responded to the short seller’s report with a 413-page reply, claiming that Hindenburg’s allegations are unfounded.
