Block Inc Stock Plunged 21.9% on Hindenburg Short-Selling Report

The Block Inc (NYSE: SQ) stock price plunged 21.9% after renowned short-selling investment firm Hindenburg Research released a report accusing the company of facilitating crime and inflating the number of transacting users on its Cash App.

The short-selling report equated Block’s internal compliance and anti-money laundering measures to the “Wild West” where anything goes. Hindenburg claimed that it had conducted a two-year investigation of Block, formerly known as Square Inc., before arriving at the conclusions contained in its report.

Hindenburg warned investors excited by Block’s low customer acquisition costs and the high number of transacting customers that the information provided by the company to its shareholders and other stakeholders was widely inaccurate. 

The short selling report claims that Block’s customer acquisition costs are much higher than it states and that between 40% -75% of the company’s transacting accounts were either fake, involved in fraud or were additional accounts linked to one physical user. 

Hindenburg says Block did not attract many people who were banking with traditional banks. Instead, it attracted many criminals who are typically underbanked due to its “Wild West” internal compliance methods that make it easy for criminals to create mass accounts, which they use to commit identity fraud and other crimes, after which they quickly withdraw the funds.  

The allegations made by Hidenburg are pretty severe since the short seller claims that Bcok obfuscates the number of active accounts on its Cash App by reporting misleading “transacting active” metrics driven by fake and duplicate accounts.

The short-selling report also reveals that the company’s CEO, Jack Dorsey, has touted the Cash App’s mentions by hip-hop rappers as part of its mainstream appeal. Hindenburg found that a close analysis of the lyrics mentioning the app indicated that it was used for criminal activities, such as paying for murders, trafficking drugs, and sex trafficking. 

Hidenburg’s report paints a dark picture of Block’s Cash App. It remains to be seen if authorities will take action and start investigating the company, focusing on its internal anti-money laundering and compliance controls. 

Block shares seem to have bottomed for now, but if Hidenburg’s claims are valid, the company’s future is highly uncertain. 

*This is not investment advice. 

Block stock price. 

The Block stock price plunged 21.9% to trade at $56.74, from Wednesday’s closing price of $72.65.