Hindenburg Claims Against Block Inc. :Block Inc., originally known as Square Inc., has a $44 billion market cap, according to Hindenburg, and claims to have created a “magical” and “frictionless” financial system with a goal of empowering the “unbanked” and the “underbanked.”
“Our 2-year investigation has concluded that 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 revolutionary technology, and mislead investors with inflated metrics,” the Hindenburg report said.
The research firm asserts that in addition to conducting dozens of interviews with former workers, business partners, and subject matter experts, it also thoroughly examined regulatory and court documents and filed FOIA and public records requests.
“Our research indicates, however, that Block has wildly overstated its genuine user counts and has understated its customer acquisition costs. Former employees estimated that 40%-75% of accounts they reviewed were fake, involved in fraud, or were additional accounts tied to a single individual. Core to the issue is that Block has embraced one traditionally very “underbanked” segment of the population: criminals. The company’s “Wild West” approach to compliance made it easy for bad actors to mass-create accounts for identity fraud and other scams, then extract stolen funds quickly,” it stated in the report.
According to Hindenburg, even when users were caught engaging in fraud or other prohibited activity, Block blacklisted the account without banning the user. “A former customer service rep shared screenshots showing how blacklisted accounts were regularly associated with dozens or hundreds of other active accounts suspected of fraud. This phenomenon of allowing blacklisted users was so common that rappers bragged about it in hip hop songs,” the research note of Hindenburg reveals.
“Former employees described how Cash App suppressed internal concerns and ignored user pleas for help as criminal activity and fraud ran rampant on its platform. This appeared to be an effort to grow Cash App’s user base by strategically disregarding Anti Money Laundering (AML) rules,” the report further added.