Fintech payments company Block (SQ) has seen a sharp drop in its share price, down 17%, after becoming the target of Hindenburg Research, a notable short seller. The research claimed that Block has been “systematically taking advantage of the demographics it claims to be helping.” It alleges that the company “facilitate[s] fraud against consumers and the government, avoid[s] regulation, dress[es] up predatory loans and fees as revolutionary technology, and mislead[s] investors with inflated metrics.”
CEO of Block, Jack Dorsey, who was also formerly the CEO of Twitter, has been an outspoken proponent of Bitcoin (BTC). Under his leadership, Block began offering bitcoin purchases and the development of a bitcoin wallet and mining rigs. However, the Hindenburg report claims that Bitcoin revenues remain a small part of Block’s overall business, which is dominated by the company’s Cash App.
The focus of the Hindenburg report is on the alleged overstatement of genuine user counts by Block and the understatement of customer acquisition costs. “Former employees estimated that 40%-75% of accounts they reviewed were fake, involved in fraud, or were additional accounts tied to a single individual,” according to the report.
Block has responded to the allegations, stating that they are “false and misleading,” and that they intend to cooperate fully with regulatory authorities. In a letter to shareholders, Block claimed that Hindenburg had a “short position” in the company and that they had made “numerous inaccurate and misleading allegations” in the report.
Investors are waiting to see what regulatory action, if any, will be taken against Block in response to these allegations. The company has previously faced regulatory scrutiny over its Cash App, which has been accused of facilitating the purchase and sale of illegal drugs and other illicit activities.
Jack Dorsey’s connection to the crypto world has been a topic of interest for some time. He has been a vocal proponent of Bitcoin and has advocated for the adoption of the cryptocurrency as a means of payment. In addition to his work with Block, Dorsey has also been involved in the development of Square Crypto, a subsidiary of Square that focuses on developing open-source Bitcoin technology. He has also been involved in the creation of a Bitcoin endowment fund aimed at supporting the development of the cryptocurrency.
In recent years, Dorsey has become one of the most prominent figures in the crypto world, and his involvement with Block has been seen as a major endorsement of the technology. However, the recent allegations against Block have raised questions about the company’s future and its relationship with the crypto industry. Investors will be watching closely to see how these issues are resolved in the coming weeks and months.