Hindenburg Research Accuses Jack Dorsey’s Block of Fraud
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Hindenburg Research Accuses Jack Dorsey’s Block of Fraud

Hindenburg Research hit out at Jack Dorsey's Block for engaging in fraudulent activities.
Neither the author, Tim Fries, nor this website, The Tokenist, provide financial advice. Please consult our website policy prior to making financial decisions.

Research firm and activist short-seller Hindenburg Research revealed it shorted Jack Dorsey’s Block, accusing the company of “frictionless” fraud, among other things. Other allegations against the fintech company in the report include deficient KYC efforts, inflated Cash App user numbers, disregarded anti-money laundering regulations, and more.

Block Shares Down 20% Following Hindenburg Report

Famous short-seller Hindenburg Research has hit out against Jack Dorsey-led fin-tech company Block accusing it of fraud. Hindenburg also revealed that Block is in its latest short position, sending the shares of the fintech firm down more than 20% Thursday.

In the report published Thursday, Hindenburg said its two-year investigation into Block uncovered a lot of major concerns, including revelations that the company “has systematically taken advantage of the demographics it claims to be helping.”

“The “magic” behind Block’s business has not been disruptive innovation, but rather the company’s willingness to facilitate fraud against consumers and the government, avoid regulation, dress up predatory loans and fees as revolutionary technology, and mislead investors with inflated metrics.”

– Hindenburg Research said in the report.

Furthermore, the research firm characterized Block’s know-your-customer (KYC) efforts as a ”‘Wild West’ approach to compliance.” KYC refers to guidelines and regulations that require financial service providers to verify the identity, suitability, and risks involved with maintaining a business relationship with a customer.

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Former Block Employees Said 40-75% of Cash App Accounts Were Fake

In its extensive report, Hindenburg also said that Block’s Cash App thrived on serving unbanked customers, who were allegedly involved in illicit activities, and also described the app’s compliance as deficient. Citing talks with former Block staff, the firm stated that a “pattern of disregard for Anti-Money Laundering (AML) and Know Your Customer (KYC) laws” emerged at the company due to pressure from top executives.

Hindenburg said this represented an effort by Block’s management to expand Cash App’s user base by “strategically disregarding” AML regulations. During its investigation, Hindenburg said it held talks with multiple former Block employees who alleged their concerns regarding the company was ignored, despite the fact that “criminal activity and fraud ran rampant on its platform.”

According to the report, former Block employees estimated that between 40% and 75% of the accounts they reviewed were fake, related to fraud, or were new accounts linked to a single individual. Earlier this month, the company launched a new feature aimed at improving Bitcoin’s Lightning Network.

Hindenburg was in the news recently for reporting on the alleged fraud committed by Gautam Adani’s companies in India, labeling it as the largest corporate fraud in history. Following Hindenburg’s report on Adani, the Indian group’s stock lost $48 billion in just three days.

Editorial Update (23rd March 2023, 10:00 AM): Article updated to include more context.

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