After a 2-year investigation, Hindenburg concluded Block (previously known as Square) “systematically took advantage of the demographics it claims to be helping.” The report accused the firm of facilitating “fraud against consumers and the government” as well as “avoiding regulation.” It further called Block’s loans and fees to be “predatory” in nature and designed to “mislead investors with inflated metrics.”
The US-based short seller said its research involved numerous interviews with former employees, partners, and industry experts, as well as an extensive review of regulatory and litigation records and FOIA and public records requests.
Hindenburg Report on Block
In a report released on March 23rd, Hindenburg claimed that Block “does not seem to offer a discernible edge” over its key rival platforms such as PayPal/Venmo, Zelle, or Apple. The report further said the company embraced non-compliance as a tactic to amplify its user base, capturing a very underbanked segment of the population – criminals.
Hindenburg added that more than a dozen of former CashApp employees admitted to the pressure from management, resulting in a disregard for Anti-Money Laundering (AML) and Know Your Customer (KYC) provisions. It further claimed Block allowed fraudulent accounts that facilitated scams to grow on Cash App, generating illegitimate revenue as well as inflating user metrics.
The report also stated that Jack Dorsey, who stepped down as the Twitter CEO in mid-2021, along with other Block insiders – James McKelvey, chief financial officer Amrita Ahuja, and Cash App manager Brian Grassadonia – sold over $1 billion of the company stock, whose price increased “on the back of its facilitation of fraud.”
