Hindenburg Research, a US-based short seller, accused payment firm Block Inc. of inflating its user counts on Cash App in a report last week. The report said that former Block employees estimated that 40% to 75% of accounts they reviewed were fake or involved in fraud.
Hindenburg alleged that the payments firm overstated its Cash App user numbers and understated its customer acquisition costs. It also said that additional accounts tied to a single individual were among the fake accounts.
On Friday, Hindenburg Research released a statement, claiming that Block’s response to its allegations confirmed that the payments firm had reported inflated user counts on its Cash App to investors for years.
According to Hindenburg Research, Block Inc.’s recent announcement regarding the number of verified users on its Cash App confirmed the short seller’s claim that the company has been inflating its user counts for years.
Block had previously disclosed that, as of December 31, 2022, 44 million out of its 51 million monthly active customers on Cash App were verified through its identity program.
Hindenburg stated that Block’s newly reported internal estimates revealed that the 51 million monthly active customers previously reported represented a 16%-31% inflation of its actual estimated internal user counts. The payments firm, headed by Twitter co-founder Jack Dorsey, did not respond to a request for comment from Reuters.
However, Block responded to Hindenburg’s original report in a statement, saying that the claims were “false and misleading” and that the company would be “vigorously defending itself against these allegations.”
Block Faces Allegations of Overstating Cash App
Short sellers typically sell borrowed securities and aim to buy them back at a lower price. The accusations against Block by Hindenburg have led to a sharp drop in its stock price. The stock fell as much as 25% following the publication of Hindenburg’s report last week.
The accusations against Block come at a time when the payments industry is under increased scrutiny from regulators and investors. Firms such as PayPal, Square, and Stripe are increasingly facing scrutiny over their practices, including how they verify users, protect their data, and comply with anti-money laundering laws.
The payments industry has been boosted by the shift to e-commerce and contactless payments, which have become increasingly popular during the pandemic. However, the rapid growth of the industry has also raised concerns about fraud, money laundering, and other illegal activities.
The accusations made by Hindenburg Research against Block Inc. have serious implications for the payments firm. The accusations of inflated user counts and fake accounts are likely to lead to increased scrutiny from regulators and investors.
The payments industry is already under scrutiny, and the accusations against Block are likely to add to this pressure. As the industry continues to grow, it will be essential for payments firms to address these concerns and ensure that they are complying with regulations and protecting their users’ data.
