On March 23, Hindenburg released a 17,600-word report, accusing Block of misleading investors about user metrics, using “predatory” services and the worst compliance practices to fuel growth, and facilitating consumer and government fraud for profit.
The allegations came after Hindenburg conducted dozens of interviews with former employees, partners and industry experts and scrutinized legal and litigation records, as well as Freedom of Information Act requests and public records requests, the US-based short seller said.
Block shares fell 22% immediately after Hindenburg’s allegations before closing down 15%, their steepest decline since May 2022, wiping out about $6.5 billion in market value and all of the company’s year-to-date profits.
Twitter was founded by Jack Dorsey and three others in 2006 and was acquired by billionaire Elon Musk in October 2022 for $44 billion. Photo: thenextweb.com
The net worth of Block co-founder Jack Dorsey also fell $526 million, or 11 percent, to $4.4 billion, as much of his wealth is tied up in the company. Dorsey has about $3 billion in Block shares, according to Bloomberg estimates.
Jack Dorsey is also the co-founder and former CEO of Twitter. His stake in billionaire Elon Musk's social media company is worth an estimated $388 million.
In response to Hindenburg's allegations, Block said it would work with the U.S. Securities and Exchange Commission to consider legal action against the company "for inaccurate and misleading reporting" about its Cash App business .
Block (formerly known as Square) was founded by Mr. Dorsey and Mr. Jim McKelvey in 2009, specializing in providing direct payment services and payment card readers.
The company later added a mobile payment service called Cash App, which allows users to transfer money back and forth using a mobile app. It also acquired the buy-now-pay-later service provider Afterpay and Jay-Z's music streaming service Tidal. Block also has a cryptocurrency-focused business called TBD.
Hindenburg Research also accused Block of allowing users to make illegal transactions through Cash App. Photo: Washington Post
In its latest quarterly report on February 23, Block said Cash App had more than 51 million monthly active users as of December 2022, double the number before the pandemic. Cash inflows into the app also exceeded $203 billion in 2022, about four times higher than the figure in 2019.
Still, much of Cash App's pandemic-driven growth has come from facilitating suspicious payments, Hindenburg said.
This isn't the first time CEO Nathan Anderson's short-selling firm has accused billionaires of fraud, causing their fortunes to plummet.
The company announced an investigation into the Adani Group earlier this year, wiping out more than $100 billion in market value. The Indian tycoon also lost tens of billions of dollars, knocking him out of the top 20 richest people in the world from third place. He is now ranked 21st on Bloomberg’s list with a fortune of $60.1 billion.
Hindenburg also targeted electric carmaker Nikola in September 2020, sending the electric carmaker's stock plunging. Nikola founder Trevor Milton was also convicted of fraud and wire fraud just a month later .
Nguyen Tuyet (According to Bloomberg, Financial Times, NY Times)
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