Cash App is Lying to Investors and Abetting Crime, Short Seller Says
A short-seller attacks the Block.
Fresh off its nation-rattling takedown of India’s most powerful corporation, Hindenburg Research released a damning report Thursday alleging that the Jack Dorsey-led tech conglomerate Block facilitates fraud, avoids regulation, and misleads shareholders with inflated metrics.
Where There’s Smoke
Hindenburg’s two-year investigation focused primarily on Block’s Cash App, a fintech program that doesn’t require users to connect to traditional bank accounts. While Dorsey and co. would like investors to believe that Cash App serves 51 million active users monthly, that might not be the case. Through multiple interviews, Hindenburg said former employees estimated that 40% to 75% of Cash App’s accounts were either fake, involved in crime, were additional accounts tied to a single user, or some combination of the three. Block employees also told Hindenburg that in order to keep growth strong during the pandemic — allowing Dorsey and Block co-founder James McKelvey to sell more than $1 billion in company stock — Cash App disregarded warning signs of criminal activity and failed to uphold basic security measures.
One of the more striking if peculiar aspects of Hindenburg’s analysis is a compilation video of rappers singing about how they use Cash App to pay for drugs, sex workers, and even assassins. While the legal admissibility of rap lyrics is not yet settled law, most musicians tend to write what they know. In one instance (totally unrelated to Block), California rapper Nuke Bizzle released what is essentially a how-to music video about committing unemployment fraud. Only a few weeks later he was arrested for scamming the government out of $1.2 million in Covid relief funds, $85,000 of which was transferred via Cash App.
It doesn’t stop there either:
- Hindenburg argues Cash App plays an important role in violent crime. The Polaris Project, a nonprofit that fights forced prostitution, said Cash App is one of the top facilitators of sex trafficking, including of minors, in the US, and that’s backed up by multiple indictments from the Department of Justice.
- When the Drug Enforcement Administration arrested 60 gang members in San Francisco in 2021, prosecutors found that the Sinaloa cartel – the El Chapo one – handled much of its payments for fentanyl and methamphetamine shipments through Cash App.
‘Another Big One’: Hindenburg’s expansive report on Block comes only two months after the short seller delivered similarly explosive findings on Adani Group. It argued that the Indian conglomerate, which at the time was worth $218 billion, dabbled heavily in stock manipulation and accounting fraud. Since then, the company has lost more than $100 billion in its market value and its share price has dropped nearly 50%. So buckle up, Jack, it might be a bumpy ride.