(TheRedAlertNews.com) – BREAKING NOW: Block’s shares plummeted 19% after Hindenburg Research revealed on Thursday that it had taken a short position in the company. The short-seller accused Block of permitting criminal activity due to weak controls and significantly overstating Cash App’s transacting userbase, an essential performance metric.
The co-founder, chairperson, and CEO of Block is Jack Dorsey, the controversial co-founder and former CEO of Twitter.
Hindenburg Research characterized Block’s internal systems as exhibiting a “Wild West approach to compliance.”
According to the short-seller, their two-year investigation found that “Block has systematically taken advantage of the demographics it claims to be helping.” The research firm pointed out that Block’s Cash App primarily serves unbanked customers.
The report claims that these unbanked customers participated in criminal or illicit activities and that Cash App’s compliance programs were inadequate.
Throughout its two-year investigation, Hindenburg interviewed several former employees who explained that internal concerns were silenced and user concerns were disregarded, even as “criminal activity and fraud ran rampant on its platform.”
Hindenburg’s comprehensive report contains screenshots of internal systems and employee messages, bringing attention to alleged financial misreporting.
The short-seller claimed that around 35% of Cash App’s revenue, or approximately $892 million, comes from interchange fees, which should be legally capped.
Hindenburg alleges that Block circumvents the regulatory cap imposed on large financial institutions by routing this revenue through a small bank. The short-seller claims that Block’s rival, PayPal, uses a similar method, which led to an investigation by the Securities and Exchange Commission.
PayPal did not immediately provide a comment.
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