Hindenburg says Jack Dorsey's Block inflated user count; allowed insiders to encash over $1B

Hindenburg Research on Thursday alleged Jack Dorsey-led payments company Block overstated its user counts, understated customer acquisition costs, and enabled insiders to cash out over $1 billion.

“Our 2-year investigation has concluded that Block has systematically taken advantage of the demographics it claims to be helping,” Hindenburg Research said in a report published on its website.

“The ‘magic’ behind Block’s business has not been disruptive innovation, but rather the company’s willingness to facilitate fraud against consumers and the government, avoid regulation, dress up predatory loans and fees as revolutionary technology, and mislead investors with inflated metrics,” the short seller added.

YourStory could not independently verify the claims raised in the Hindenburg Research report. Block did not respond to the queries sent by YourStory at the time of publication of this news.

Hindenburg Research said in its report that former Block 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 further added that Block obfuscates how many individuals are on its mobile payment platform, Cash App, by reporting misleading “transacting active” metrics filled with fake and duplicate accounts.

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Founded in 2009 by Jack Dorsey and Jim McKelvey, Block is a global technology firm with a focus on financial services. It is made up of Square, Cash App, Spiral, TIDAL, and TBD54566975. 

Hindenburg stated Block’s co-founders Dorsey and McKelvey collectively sold over $1 billion of stock during the pandemic. It added that other executives, including CFO Amrita Ahuja and the lead manager for Cash App Brian Grassadonia, also dumped millions of dollars in stock.

“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 Research said.

Founded by Nate Anderson, Hindenburg Research specialises in forensic financial research. According to its website, it focuses on equity, credit, and derivatives analysis. 

Hindenburg Research revealed that it has taken a short position in shares of Block. It spends its own money and takes short bets against businesses. 

Investors that take a short position sell borrowed stock in the hopes of purchasing it back at a reduced price later. They earn a fortune if prices decrease as projected. 

Block shares plunged 19% after the release of Hindenburg Research’s report.

In January, Hindenburg released a report alleging the Adani Group had "engaged in a brazen stock manipulation and accounting fraud scheme over the course of decades''. Subsequently, Adani Group shares have plummeted on the bourses.