Speaking of Rich Poxes on Humanity
Jack Dorsey, under whose leadership Twitter turned into a cesspool of hate and bigotry, (now being made even worse by Elon), is is now being targeted by notorious short seller Hindenburg over the allegedly fraudulent practices of his company Block, the mobile payments processor formerly known as Square.
Allegedly, the company has been evading anti-money laundering statutes, over-reporting the number of users that it has, and predatory lending.
Not a huge fan of short sellers, but here’s hoping that they take Dorsey to the cleaners:
Shares of the payments company formerly known as Square fell about 15% on Thursday after a short seller questioned the company’s user numbers and accused it of predatory tactics.
Hindenburg Research said a two-year investigation into Block Inc. found the company “obfuscates” its Cash App service’s true user numbers by reporting misleading metrics “filled with fake and duplicate accounts.” It also accused the company of taking advantage of the demographics it claims to serve — lower-income people and minorities — with “predatory loans and fees.”
Hindenburg’s report is “factually inaccurate and misleading” and “designed to deceive and confuse investors,” Block said in a statement. The company also said it was exploring legal action against the short seller.
Short sellers profit when a stock falls. They do this by borrowing stocks that they believe are overvalued, selling them, and buying them back later at a lower price.
Block is best known for its signature white credit-card readers that let businesses accept payments with a smartphone or tablet, though its Cash App peer-to-peer payment service has been a key driver of the company’s growth in recent years. The ease with which Block made it possible for people to accept stimulus checks and unemployment benefits in Cash App during the Covid-19 pandemic helped turbocharge its usage.
Hindenburg said much of Cash App’s pandemic-induced growth came from facilitating suspect payments. Public records Hindenburg requested from states including Massachusetts and Ohio showed that a bank that partners with Cash App had a disproportionate number of suspect payments for unemployment benefits. Former Cash App employees that Hindenburg interviewed estimated that a large portion of Cash App accounts were potentially fake, raised red flags for fraud or were connected to a single real person.
Cash App’s compliance controls were another target for Hindenburg. The short seller cited court documents in which law-enforcement agencies said criminals used Cash App to move drug money or pay for sex trafficking. A Baltimore gang even named itself Cash App, Hindenburg said. Members of the gang pleaded guilty to drug charges.
“Block has misled investors on key metrics, and embraced predatory offerings and compliance worst-practices in order to fuel growth and profit,” Hindenburg said in its report.
Hindenburg called attention to investigations from the Consumer Financial Protection Bureau and many state attorneys general into Cash App’s business practices, including its handling of customer complaints and disputes. Block disclosed those matters in securities filings and said the CFPB’s investigative requests were “overly burdensome” in court documents.
Nathan Anderson’s Hindenburg has previously targeted companies including Nikola Corp., the electric truck maker whose founder was later convicted of securities fraud, and Indian conglomerate Adani Group.
There really is a culture of criminality at the core of America’s tech sector. It started small, things like Jobs and Woz phone phreaking, and now you crap like Tharanos, false claims of self driving cars, counterfeit users, and dubious claims of profitability.
If a prosecutor were to get medieval on the sector, particularly the VCs who promulgate the frauds and get out before they collapse, perhaps our allocation of capital, and our society, would be more productive.