Hindenburg Research on March 23 announced it was shorting the digital payments company Block, founded by billionaire Jack Dorsey, co-founder and former CEO of Twitter, alleging that the company lied about its user numbers.
Block shares fell 20% to $57.85 a share after Hindenburg’s report. If the company’s stock continues to decline, it could hit its lowest level since March 2020.
According to the US short-selling firm, former Block employees estimate that 40%-75% of the accounts they examined were fake or virtual accounts.
Nathan Anderson, founder of short-selling firm Hindenburg Research. Photo: India Times
According to Hindenburg, Block misled the number of users on the company's payments platform by reporting “active transactions” filled with fake and duplicate accounts.
The short-selling firm also added that Block co-founders Jack Dorsey and James McKelvey together sold more than $1 billion in shares during the pandemic, as the company's stock price soared.
Other Block executives including chief financial officer Amrita Ahuja and Cash app CEO Brian Grassadonia have also sold millions of dollars in shares, Hindenburg added.
Hindenburg gained more prominence after a report into billionaire Gautam Adani's business empire in January sent shares and bonds of all 10 Adani group companies tumbling.
Gautam Adani's fortune has fallen to $53 billion from a peak of more than $150 billion in September 2022 after the Hindenburg report was released, although the Adani group has denied Hindenburg's allegations of accounting fraud and stock manipulation.
Shares in Adani Enterprises, the group’s flagship company, have also fallen 48% since the report was released. Hindenburg’s Twitter following has doubled to more than 500,000.
Billionaire Gautam Adani's conglomerate lost more than $100 billion in market value within a week of the Hindenburg report. Photo: Republic World
Founded in 2017 by Nathan Anderson, Hindenburg is a financial research firm that specializes in equity, credit, and derivatives analysis. The firm describes itself as a short seller. After researching a potential target, Hindenburg will borrow shares from a dealer or brokerage firm and sell them on the market.
Hindenburg would then publicize his research in the hope that the company's stock price would fall so he could buy it back and return it to his broker. The money left over after the short seller returned the borrowed shares was his profit. If the price of the stock Hindenburg bet on rose, the short seller would lose money.
Hindenburg has targeted about 30 companies since 2020. Shares of these companies typically fall about 15% on average within a day and 26% within six months of Hindenburg's report .
Nguyen Tuyet (According to Bloomberg, Reuters)
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