What is Block, Cash App and what are Hindenburg's accusations against Jack Dorsey?

US-based short seller Hindenburg Research on Thursday came out with a critical report on America's mobile payment company Block, which is headed by Twitter co-founder Jack Dorsey. The report said that Block Inc, formerly known as Square Inc, is a $44 billion market cap company that claims to have developed a 'frictionless' and 'magical' financial technology with a mission to empower the 'unbanked' and the 'underbanked'.

Also read: Hindenburg Research shorts Jack Dorsey's payments firm Block

However, the short seller claimed, Block 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 a revolutionary technology, and mislead investors with inflated metrics," the report claimed.
 
Hindenburg, which recently accused India's Adani Group of indulging in stock manipulation and accounting fraud, said that most analysts were excited about the post-pandemic surge of Block's Cash App platform. However, the report claimed, that Block has "wildly overstated" its genuine user counts and has understated its customer acquisition costs. "Former employees estimated that 40-75 per cent of accounts they reviewed were fake, involved in fraud, or were additional accounts tied to a single individual," the report claimed.

The short seller further claimed that Block reported a pandemic surge in its user counts and revenue, ignoring the contribution of "widespread fraudulent accounts and payments". The report said that the new business provided a sharp one-time increase to Block’s stock, which rose 639 per cent in 18 months during the pandemic.

Allegations against Jack Dorsey

Hindenburg has accused Jack Dorsey of facilitating fraud at Block. Dorsey was co-founder of Twitter and served as its CEO from 2015 to 2021. Hindenburg claimed that he profiteered by dumping stocks worth billion of dollars during the pandemic. "As Block’s stock soared on the back of its facilitation of fraud, co-founders Jack Dorsey and James McKelvey collectively sold over $1 billion of stock during the pandemic," the short-seller claimed, adding that other executives, including CFO Amrita Ahuja and the lead manager for Cash App Brian Grassadonia, also dumped stock worth millions of dollars.

Hindenburg also said that it believed Jack Dorsey had built an empire — and amassed a $5 billion personal fortune — professing to care deeply about the demographics he was taking advantage of. "With Dorsey and top executives already having sold over $1 billion in equity on Block’s meteoric pandemic run higher, they have ensured they will be fine, regardless of the outcome for everyone else," it claimed.

The report also claimed that Jack Dorsey has multiple accounts, including some that appear aimed at scamming Cash App users. "There are dozens of 'Elon Musk' and 'Donald Trump' fake accounts as well," it said. "A search for Cash App account holders with the name “Jack Dorsey” turns up numerous accounts, including a number with “cash tags” that could be used to mislead and scam other users."