Hindenburg Research, a short seller that recently targeted India’s Adani Group, has been accused of blocking payment groups artificially inflating the number of users and facilitating fraudulent transactions.
In a statement on Friday, Hindenburg said he has been investigating Block, which is led by Twitter co-founder Jack Dorsey, for two years and has taken a short position in shares.
It said the series of allegations was based on “dozens of interviews with former employees, partners, and industry experts, an extensive review of regulatory and court records, and FOIA and public records requests”.
Block’s two main businesses are Square’s payment service for merchants and its mobile payment product Cash App, which competes with rivals such as PayPal, Venmo and Zelle. The company bought Afterpay, a buy now, pay later business, for $29bn in 2021.
Block said it will work with the Securities and Exchange Commission to explore legal action against Hindenburg “for factually inaccurate and misleading reports” about the Cash App business.
“We have reviewed the full report in the context of our own data and believe it is designed to deceive and confuse investors,” the company said in a statement.
Block shares were down 14 percent on Friday afternoon. At Wednesday’s closing price, the company had a market capitalization of nearly $44bn.
New York-based Hindenburg first gained notoriety in 2020 when he claimed that Nikola’s truck startup business was a scam. Earlier this year, it accused Indian billionaire Gautam Adani, at the time the third richest man in the world, of “pulling the biggest con in corporate history”. The report helped wipe about $100 billion off the market value of his empire. Adani has denied the allegations.
Hindenburg, Thursday, said that Block has overstated the number of original users while also understating the amount of costs to attract new customers.
Hindenburg cited “former employees” as estimating that 40 to 75 percent of the accounts he sees are fake, involved in fraud or users who have multiple accounts.
Hindenburg said that while investigating the matter, he had opened several accounts under false names including “Donald Trump” and “Elon Musk”.
The short seller also claims that what he describes as the “wild west” approach of Blok has become a popular service for criminals to process transactions.
The report states that Block does not have a clear advantage over competitors such as PayPal or Zelle.
Hindenburg mentions the inclusion of Cash App in hip-hop songs where rappers brag about using the app for criminal activities.
“A review of these songs shows that the artists do not generally praise the smooth user interface of the Cash App,” Hindenburg said, adding that many of them use it “for scams” or for other illegal activities.