Hindenburg Research, the short-seller whose damning report on Indian billionaire Gautam Adani triggered a $150 billion loss from the mogul’s net worth, is now accusing Jack Dorsey’s mobile payment firm Block of “facilitating fraud” by turning a blind eye to customers who took advantage of pandemic-era relief payments.
Hindenburg on Thursday alleged that Block overstated its user numbers and understated its customer acquisition costs.
Block also was accused of failing to crack down on illegal activities by customers of its Cash App payments facilitator.
Hindenburg alleges that Cash App clients exploited government stimulus payments during COVID lockdowns to line their pockets.
“Block ignored both internal and external warnings that multiple individuals using the same bank account number to receive government funds was a brazen red flag of fraud,” Hindenburg said in the report.
“Multiple key lapses in Cash App’s compliance processes facilitated billions in government payment fraud.”
Hindenburg said it was told by authorities in Massachusetts that the state was looking to claw back more than 69,000 unemployment payments sent to Cash App accounts.
Shares of Block, which developed the popular Cash App mobile payment facilitator, plunged by some 20% just after the opening bell rang on Wall Street on Thursday.
The Post has sought comment from Block.
“Our 2-year investigation has concluded that Block has systematically taken advantage of the demographics it claims to be helping,” the short seller said in a note published on its website.
Hindenburg claims that Block “obfuscates” the number of customers registered on its Cash App platform by reporting misleading “transacting active” metrics filled with fake and duplicate accounts.
The firm said that Block co-founders Dorsey and James McKelvey collectively sold over $1 billion of stock during the pandemic as the company’s share price soared.
Other executives including finance chief Amrita Ahuja and the lead manager for Cash App Brian Grassadonia also dumped millions of dollars in stock, the report added.
Before releasing its findings on Thursday morning, Hindenburg teased that it would be issuing a “new report soon — another big one.”
The tweet on Wednesday went viral, generating more than 31,000 likes and 6 million views as of Thursday morning.
About 5.2% of Block’s free float shares were in short position as of March 22, according to Ortex data.
The company’s ticker was third most trending on retail investor focused forum StockTwits.
Last month, Block said it is “meaningfully slowing” the pace of hiring this year to control costs.
Founded in 2017 by Nathan Anderson, Hindenburg is a forensic financial research firm that analyses equity, credit and derivatives.
Hindenburg invests its own capital and takes short-positions against companies. After finding potential wrongdoings, the company usually publishes a report explaining the case and bets against the target company, hoping to make a profit.
In late January, Hindenburg published a report alleging that Adani’s port-operating conglomerate engaged in stock manipulation and fraudulent accounting practices to artificially inflate the value of his company.
At the height of his wealth, Adani was worth more than $150 billion last year — exceeding that of Amazon founder Jeff Bezos.
Earlier this month, Adani’s net worth dipped to less than $38 billion.
He has since been seeking to win back investor confidence after the Hindenburg report triggered a massive selloff in company stock.
With Post Wires
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