Following the publication of a report by short seller Hindenburg Research, Block Inc. shares declined on Thursday. The Cash App service formerly known as Square dropped 13 percent during early trading and continued to decline throughout the day. The short seller questioned the company’s claimed user numbers. According to its two-year-long investigation into the company, it also accused Block of employing exploitative tactics.
According to Hindenburg Research, Block reported misleading metrics that were “filled with fake and duplicate accounts,” obscuring the true number of Cash App users. The short seller also asserted that the company charged “predatory loans and fees” to low-income individuals and minorities, the demographic that the Block claimed it would serve.
The CEO and co-founder of Block, Jack Dorsey, had stated that Cash App would become its customers’ primary banking application. In a November 2017 call with Wall Street Analysts, Dorsey, who was also the founder of Twitter, which was acquired by Elon Musk in 2016, stated, “Cash App has everything you need for your financial life.”
However, according to the Hindenburg Research report, Cash App had numerous deficiencies, including compliance controls. According to court documents presented by law enforcement agencies, the App was used to pay for illegal activities such as sex trafficking and the transfer of narcotic money.
Hindenburg Research’s report also centered on Cash App’s business practices. It was stated that the Consumer Financial Protection Bureau (CFPB) and several state attorneys general had initiated investigations into Block’s business practices. The company stated that these investigations were disclosed in its filings. According to court documents, Block reportedly characterized the CFPB’s investigation requests as “overly burdensome.”
Block issued a statement claiming that the short seller’s report was “factually inaccurate and deceptive.” Additionally, it stated that it had begun investigating legal action against Hindenburg Research.
Previous clients of Nathan Anderson’s Hindenburg Research included electric vehicle manufacturer Nikola Corp. and others. Trevor Milton, the founder of the electric vehicle manufacturer, was convicted of securities fraud.
CWEBÂ has provided some information for this story.
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