Hindenburg Research shorts Jack Dorsey’s payments group Block

Hindenburg Research, the short seller that recently targeted India’s Adani Group, has accused payments group Block of artificially inflating its user numbers and facilitating fraudulent transactions.

In a statement on Thursday, Hindenburg said it had been investigating Block, which is led by Twitter co-founder Jack Dorsey, for two years and had taken a short position in the shares.

It said the accusations were based on “dozens of interviews with former employees, partners, and industry experts, extensive review of regulatory and litigation records” as well as Freedom of Information Act requests and “public records requests”.

Block’s two primary businesses are its Square payments services for merchants and its Cash App mobile payments product, which competes with rivals such as PayPal’s Venmo and Zelle. Hindenburg alleged Block “obfuscates” the actual number of people on its Cash App platform by reporting “misleading . . . metrics filled with fake and duplicate accounts”.

Block said it would work with the Securities and Exchange Commission to explore legal action against Hindenburg “for the factually inaccurate and misleading report” about its Cash App business.

“We have reviewed the full report in the context of our own data and believe it’s designed to deceive and confuse investors,” the company said.

Block’s shares were down more than 14 per cent on Thursday afternoon. As of Wednesday’s closing price, the company had a market capitalisation of nearly $44bn.

New York-based Hindenburg first came to prominence in 2020 when it claimed truck start-up Nikola’s business was a fraud. Earlier this year, it accused Indian billionaire Gautam Adani, at the time the third-richest person in the world, of “pulling the largest con in corporate history”. The report helped wipe about $100bn off his empire’s market value. Adani has denied the allegations.

Hindenburg on Thursday alleged Block had overstated its genuine user counts while also understating the amount it costs them to attract new customers.

Hindenburg cited “former employees” as estimating that 40 to 75 per cent of accounts they reviewed were fake, involved in fraud or were users holding multiple accounts.

Hindenburg said that in investigating the matter, it had opened several accounts under fake names including “Donald Trump” and “Elon Musk”.

The short seller also claimed that what was portrayed as Block’s “wild west” approach had led it to become a popular service for criminals to process transactions.

The report alleged Block has no obvious advantage over competitors such as PayPal or Zelle.

Hindenburg cited the inclusion of Cash App in hip-hop songs where rappers brag about using it for criminal activities.

“A review of those songs shows that the artists are not generally rapping about Cash App’s smooth user interface,” Hindenburg stated, adding that many describe using it “to scam” or for other illicit activity.