Reported by Rohan Goswami and MacKenzie Sigalos
Shares of Jack Dorsey’s Block plunged 16% after short seller Hindenburg Research announced Thursday that the payment company was its latest short position, alleging that Block allowed criminal activity to operate with lax controls and “highly” inflates Cash App’s transacting value user base, a key metric of performance.
Hindenburg described Block’s internal systems as a ”‘Wild West’ approach to compliance.”
Hindenburg took issue with Cash App’s practices during the Covid pandemic, when the government issued stimulus checks to qualified American adults. The report alleges that the lockdowns “posed an existential threat” to Block’s critical merchant services business.
“CEO Jack Dorsey Tweeted that users could get government payments through Cash App ‘immediately’ with ‘no bank account needed’ due to its frictionless technology,” the report said.
Just a few weeks into Cash App’s delivery of the first round of government payments, states were apparently trying to claw back suspected fraudulent payments — “Washington State wanted more than $200 million back from payment processors while Arizona sought to recover $500 million,” said Hindenburg, citing multiple former employees.
Citing interviews with former employees, Hindenburg alleged that “pressure from management has resulted in a pattern of disregard for Anti-Money Laundering (AML) and Know Your Customer (KYC) laws.”
The report notes that “this appeared to be an effort to grow Cash App’s user base by strategically disregarding Anti Money Laundering (AML) rules.”
To test the theory, the short seller opened accounts in the name of former President Donald Trump and Tesla CEO Elon Musk, and then obtained a Cash App card, called the Cash Card, under the “obviously fake Donald Trump account,” the report said.
The card bearing Trump’s name arrived “promptly” in the mail.
“Former employees estimated that 40%-75% of accounts they reviewed were fake, involved in fraud, or were additional accounts tied to a single individual,” the report said.
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