Short Seller Accuses Jack Dorsey’s Block of Facilitating Fraud

Hindenburg Analysis, the small funding agency whose essential investigative reviews pummeled shares in an Indian industrial conglomerate and an electric-vehicle start-up, has discovered its latest goal: Jack Dorsey’s monetary know-how firm, Block.

Hindenburg revealed a 17,600-word report on Thursday accusing Block of overstating its consumer base and failing to stamp out fraud and criminal activity on its platforms — significantly Money App, its cellular fee service.

“We predict Block has misled traders on key metrics, and embraced predatory choices and compliance worst practices in an effort to gasoline progress and revenue from facilitation of fraud in opposition to shoppers and the federal government,” Hindenburg wrote in its report.

Shares in Block fell practically 20 p.c in morning buying and selling after the report was revealed. Block responded to the accusations by saying it meant to “discover authorized motion in opposition to Hindenburg Analysis.”

“Hindenburg is understood for some of these assaults, that are designed solely to permit quick sellers to revenue from a declined inventory worth,” Block mentioned in a press release. “We now have reviewed the total report within the context of our personal knowledge and imagine it’s designed to deceive and confuse traders.”

Block has turn into the most recent outstanding object of criticism by Hindenburg, whose enterprise revolves round publishing analysis reviews that harshly consider corporations — after which, usually, betting that their shares will fall, a apply referred to as quick promoting.

A Hindenburg report erased billions of {dollars} in market worth from the Adani Group, the commercial conglomerate based by the Indian billionaire Gautam Adani. Hindenburg’s allegations of fraud on the electric-truck maker Nikola ultimately led to the ouster — and felony prosecution — of Trevor Milton, the corporate’s chief government.

Block, which was referred to as Sq. till late 2021, was based by Mr. Dorsey and Jim McKelvey in 2009. Begun as a platform for retailers to take card funds, it will definitely added Money App and, by way of takeovers, the buy-now-pay-later platform Afterpay and the streaming music service Tidal.

In its report, Hindenburg wrote that Block’s Money App platform was rife with faux accounts that artificially bolstered its consumer counts. Of extra concern is what the quick vendor mentioned was prolific felony exercise on Money App, together with funds for unlawful drug gross sales and intercourse trafficking. (Unusually, Hindenburg cited as proof a number of rap lyrics describing the usage of Money App to pay for medication or assassination makes an attempt.)

The funding agency additionally cited statistics from state governments together with Massachusetts and Ohio suggesting that Money App was used for fraudulent pandemic reduction functions at the next charge than different banking companies. The report additionally accused Block executives of ignoring warnings by workers and regulators about indicators of potential pandemic reduction fraud.

And the rise in Block’s shares throughout the pandemic, which the corporate attributed to the explosion of on-line buying — however which Hindenburg mentioned was primarily based partly on fraud perpetrated on its platforms — prompted executives like Mr. Dorsey to promote hundreds of thousands of {dollars}’ price of inventory.