According to U.S. short-seller Hindenburg Research, Block Inc.’s (SQ) reaction to its charges proved the company had been giving investors false information about the number of users of its Cash App for years. As of December 31, 44 million of the Cash App’s more than 51 million monthly active users had their identities validated, according to the payments company headed by Twitter co-founder Jack Dorsey.
Block Confirms Inflated User Count
The announcement comes after Hindenburg Research published a report the previous week in which it stated that former Block employees estimated that 40% to 75% of the accounts they assessed were fraudulent, involved in fraud, or extra accounts related to the same people. Following the opening of a short position in Block, Hindenburg asserted in the report that the payments company misrepresented the number of users of its Cash App and underestimated the costs associated with acquiring new customers.
Hindenburg was quoted as saying:
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Hindenburg Claims Block Ignored Core Issues
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The report provided precise details of compliance issues that led to Block supporting fraudulent pandemic relief payments estimated to be in the billions of dollars. These loopholes included glaring omissions such as the authorization for a single account to take unemployment payments on behalf of a large number of people residing in a variety of states.
In its response, Hindenburg contends that the company offered only a high-level defense of its compliance policy while acknowledging that it “saw an increase during 2020” of risk loss. In addition to that, the corporation did not provide an estimate of the loss that would be incurred by the government and the taxpayers of the United States as a direct result of the facilitation of fraudulent pandemic relief payments.
