Block shares plunge 15% after short seller Hindenburg says Jack Dorsey’s company facilitates fraud https://www.cnbc.com/2023/03/23/block-shares-plunge-after-hindenburg-says-jack-dorseys.html Block shares plunged after noted short seller Hindenburg Research said the company’s flagship Cash App facilitates crime and lacks strong compliance controls. Hindenburg has targeted other companies before, including Indian conglomerate Adani Group. Shares of Jack Dorsey’s Block plunged nearly 15% by Thursday’s close after short seller Hindenburg Research announced that the payment company was its latest short position, alleging that Block allowed criminal activity to operate with lax controls and “highly” inflates Cash App’s transacting user base, a key metric of performance. Hindenburg described Block’s internal systems as a ”‘Wild West’ approach to compliance.” “Our 2-year investigation has concluded that Block has systematically taken advantage of the demographics it claims to be helping,” Hindenburg said in its report. The research firm said Block’s Cash App thrived on serving “unbanked” customers. The report alleges those unbanked customers were involved in criminal or illicit activity. Hindenburg also alleged that Cash App’s compliance programs were deficient. As part of its two-year investigation, Hindenburg spoke with multiple former employees who described how internal concerns were suppressed and user concerns were ignored, even as alleged “criminal activity and fraud ran rampant on its platform.” The firm’s extensive report includes screenshots of internal systems and employee messages. It also highlighted alleged financial misreporting. Up to 35% of Cash App’s revenue is derived from interchange fees, Hindenburg alleged. That’s around $892 million in revenue that the short seller said should be capped by law. But Block, formerly known as Square, avoids that regulatory cap imposed on large financial institutions by routing the revenue through a small bank, Hindenburg alleged. The small-bank routing method is one employed by Block rival PayPal , Hindenburg claimed, and which prompted a Securities and Exchange Commission probe. “A Freedom of Information Act (FOIA) request we filed with the SEC indicates that Block may be part of a similar investigation,” Hindenburg wrote. PayPal did not immediately respond to a request for comment. Hindenburg took issue with Cash App’s practices during the Covid pandemic, when the government issued stimulus checks to qualified American adults. The report alleges that the lockdowns “posed an existential threat” to Block’s critical merchant services business. “CEO Jack Dorsey Tweeted that users could get government payments through Cash App ‘immediately’ with ‘no bank account needed’ due to its frictionless technology,” the report said. Just a few weeks into Cash App’s delivery of the first round of government payments, states were apparently trying to claw back suspected fraudulent payments — “Washington State wanted more than $200 million back from payment processors while Arizona sought to recover $500 million,” said Hindenburg, citing multiple former employees. Citing interviews with former employees, Hindenburg alleged that “pressure from management has resulted in a pattern of disregard for Anti-Money Laundering (AML) and Know Your Customer (KYC) laws.” The report notes that “this appeared to be an effort to grow Cash App’s user base by strategically disregarding Anti Money Laundering (AML) rules.” To test the theory, the short seller opened accounts in the name of former President Donald Trump and Tesla CEO Elon Musk, and then obtained a Cash App card, called the Cash Card, under the “obviously fake Donald Trump account,” the report said. The card bearing Trump’s name arrived “promptly” in the mail. “Former employees estimated that 40%-75% of accounts they reviewed were fake, involved in fraud, or were additional accounts tied to a single individual,” the report said. “In sum, we think Block has misled investors on key metrics, and embraced predatory offerings and compliance worst-practices in order to fuel growth and profit from facilitation of fraud against consumers and the government,” Hindenburg wrote. Block responded to the Hindenburg report later on Thursday. “We intend to work with the SEC and explore legal action against Hindenburg Research for the factually inaccurate and misleading report they shared about our Cash App business today,” the company said in a press release. “We are a highly regulated public company with regular disclosures, and are confident in our products, reporting, compliance programs, and controls. We will not be distracted by typical short seller tactics,” Block added.
Does not surprise me. Those arrogant tech CEO pricks have been playing this game for years. Promoting themselves as the solution to humanity's ills but in reality sucking every last drop of blood out of the desperate poor and newly landed immigrants as well as being lax on compliance and inflating their user base numbers. Same with PayPal, Ebay. Every time you look behind the curtain and figure out who is behind those ventures the same culprits surface. Peter Thiel is one of the biggest criminals in town. He was coincidently the same guy who viciously destroyed gawker and most recently tried to dictate his terms on SVB and when he did not get special treatment he engineered the bank run by pulling all his money and calling up his cronies to do the same. Those guys are 100% self serving, they don't have anyone's interest in mind nor do they care to screw anyone who gets in their way. Worst, they employ a horde of whore lawyers who constantly lobby politicians to act in their interest and run campaigns to destroy law makers who don't agree with their mafia style extortion methods. Those guys are the worst of mankind and don't mind to bring the entire planet down with them.
Bought some shares in SQ today, they are a good business. The processing terminals are almost everywhere in the hippie eateries. The allegation is focused its cash app and AML. If true, this type of accussion evenutally will be settled with money and revamp of its app. Won't stop its cash flow.
With negative earnings per share, is that a good thing? It's not just a question of if people use your service, but also if you make money providing it.
It's easy to post "revenue growth" when you're losing money, either via selling something below cost, or via outright fraud. Theoretically a company could make their "revenue" any number they want it to be by just circulating the same money through the system over and over again. Those numbers don't really mean much unless they're accompanied by a profit. Read a bit about the crazy Eddie's fraud back in the day. They figured out that the gain in the share price from increasing "sales" was much more valuable to them then the cost to rig the numbers and that was with a company that actually stocked and sold a physical product. https://whitecollarfraud.com/crazy-eddie/crazy-eddie-fraud/ Transaction processing companies seem to be really fertile ground, a la wirecard. I wouldn't trust the growth numbers of any transaction processing company that loses money. It just took easy to move the numbers.
are you implying jack dorsey is crazy eddie? anyway, if you can't take risk, sq is probablly not your trade. all i looked at is the price is back to jan this year, i just need the stock to rally to 70 then i am out. of all the short seller reports, long only funds are probabaly loading up on the dip.
IMO, it seems pretty clear that his previous venture played fast and loose with user numbers. I wouldn't bet on him being honest this time based on something so trivially easy to rig. It's not like you can stand outside a few randomly selected brick and mortar stores and count foot traffic. You pretty much have to take their word. Auditors established themselves as clueless nitwits with the wirecard debacle. A billion dollars didn't even get checked in their audit.