US payments firm Block Inc has trashed the charges levelled by Hindenburg Research and said it was exploring legal action against the short seller. The company said the short seller’s report on its Cash App business was “factually inaccurate and misleading”. After reviewing the full report, Block said it was “designed to deceive and confuse investors”.
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Earlier in the day, the US short seller accused the firm of overstating its genuine user counts and understating its customer acquisition costs. It also accused the company’s co-founder and CEO Jack Dorsey of making money by selling stocks worth billion of dollars during the pandemic.
Hindenburg claimed that Block reported a surge in its user counts and revenue, ignoring the contribution of widespread fraudulent accounts and payments. The new business provided a sharp one-time increase to Block’s stock, which rose 639 per cent in 18 months during the pandemic, the report said.
“As Block’s stock soared on the back of its facilitation of fraud, co-founders Jack Dorsey and James McKelvey collectively sold over $1 billion of stock during the pandemic,” the report claimed. The short seller also said that other executives, including CFO Amrita Ahuja and the lead manager for Cash App Brian Grassadonia, dumped stocks worth millions of dollars.
Hindenburg claimed that Block had obvious compliance lapses that made fraud easy, such as permitting single accounts to receive unemployment payments on behalf of multiple individuals from various states and ineffective address verification.
However, Block said it was confident about its products, reporting, compliance programmes, and controls. Block said it intended to work with the US Securities and Exchange Commission to explore legal action. Following the report, Block’s shares fell as much as 22 per cent before paring losses and were last down 14 per cent at $62.61 in afternoon trading.
In its report, the short seller alleged that Dorsey’s firm was facilitating payments for criminal activity and the platform had been overrun with scam accounts and fake users, according to numerous interviews with former employees.
“Examples of obvious distortions abound: “Jack Dorsey” has multiple fake accounts, including some that appear aimed at scamming Cash App users. “Elon Musk” and “Donald Trump” have dozens,” it alleged.
