Jack Dorsey’s Block loses 20% of value as Hindenburg Research makes damning allegations

Hindenburg is one of a new-ish breed of short-seller that performs deep research into companies it thinks are overhyped or dabbling in fraud and takes a short position on its target’s stock before publishing its findings. It most recently grabbed headlines for hammering the business empire of India’s Gautam Adani, one of the world’s richest men, but you may also remember it from previous hits such as hydrogen-powered-truck outfit Nikola (whose CEO Trevor Milton ended up being convicted of fraud) and health-tech startup Clover Health (resulting in a Securities and Exchange Commission investigation and investor lawsuit).

Now Hindenburg has turned its attention to Dorsey’s Block, shares in which dropped as much as 22% on the report’s release, before partially recovering. Hindenburg said it had been investigating Block for two years, and accused it of:

– Misleading investors by overstating its genuine user counts, with former employees estimating as much as three quarters are “fake, involved in fraud, or…additional accounts tied to a single individual.”

– Failing to ban fraudsters from using its platform (eyebrow-lifting line: “This phenomenon of allowing blacklisted users was so common that rappers bragged about it in hip hop songs.”)

– Acting as a regular conduit for fraudulent COVID payments due to lax compliance, despite “internal employee concerns, along with warnings from the Secret Service, the U.S. Department of Labor OIG, FinCEN, and State Regulators.” (Again, references are made to rapper braggadocio.)

– Allowing its Cash App platform to be used for paying contract killers, drug dealers, and sex traffickers, and suppressing internal concerns about this. (More hip hop—seriously, Hindenburg made a compilation video.)

– Allowing fake accounts for people claiming to be Dorsey, Elon Musk, and Donald Trump.

– Possibly being under investigation by the SEC for bypassing legally-capped interchange fees and “gouging merchants with elevated fees” (rival PayPal is under investigation for the same). The SEC refused to comment on this one, per its standard policy.

– Hyping “mundane or predatory sources of revenue as technological breakthroughs.”

Block had not responded to a request for comment at the time of publication. The allegations come the day after the company released its 2022 corporate social responsibility report, which trilled about advancing Block’s “purpose of economic empowerment” by providing “lending solutions that improve access to credit for historically underserved groups.” Hindenburg says the firm really just “embraced” criminals.

The ethics of outfits like Hindenburg are certainly up for debate, and these Block allegations are yet to be proven, but the short-seller has a good reputation for doing its homework. For Silicon Valley, this is Hindenburg’s biggest hit yet, and it could prove explosive.

Want to send thoughts or suggestions to Data Sheet? Drop me a line here.

David Meyer

Data Sheet’s daily news section was written and curated by Andrea Guzman. 

NEWSWORTHY

Shou Zi Chew takes the hot seat. TikTok’s CEO used his opening statements before the House Energy and Commerce Committee to talk about Project Texas, a $1.5 billion plan to route U.S. data to domestic servers owned and maintained by Oracle. “We believe we are the only company that offers this level of transparency,” Chew said. China’s government said Thursday it would oppose possible U.S. plans to force TikTok’s Chinese owner to sell the video platform as a security risk.

Click to cancel. The Federal Trade Commission has proposed a click-to-cancel provision that aims to make it as easy for consumers to cancel their enrollment as it was to sign up. The proposal is part of the FTC’s efforts to combat unfair or deceptive practices related to subscriptions, memberships, and other recurring-payment programs. “Some businesses too often trick consumers into paying for subscriptions they no longer want or didn’t sign up for in the first place,” said FTC Chair Lina M. Khan.

Googlers fear layoffs. Efficiency is a top priority this year "given the economic environment," engineering senior vice president Urs Hölzle told technical infrastructure teams. According to a report in Insider, that message is causing some Google employees to suspect that layoffs are coming or that fewer site reliability engineers will be hired. Technical infrastructure teams oversee the company's massive network of data centers that power online search, Gmail, YouTube, and other online services. 

ON OUR FEED

“We successfully made it through Max-Q, the highest stress state on our printed structures. This is the biggest proof point for our novel additive manufacturing approach. Today is a huge win, with many historic firsts.”

—Relativity Space, the startup behind a rocket made almost entirely of 3D-printed parts that failed just after launching Wednesday night 

IN CASE YOU MISSED IT

Meta is still trying to make its virtual world a place where people want to spend time, this time with new ‘quests’, by Chris Morris

Alphabet CEO Sundar Pichai said the Bard chatbot would make mistakes. It called Google a monopoly and asked for the government to break it up, by Prarthana Prakash

Silicon Valley Bank might have just blown up a banking regulation that was put in place at the depths of the Great Depression, by Will Daniel

Bill Gates says that the A.I. revolution means everyone will have their own ‘white collar’ personal assistant, by Tristan Bove

Justin Sun and Lindsay Lohan among group charged by SEC with illegally shilling crypto, by Ben Weiss

BEFORE YOU GO

Microsoft’s workspace tool. It’s now free to test out Microsoft Loop, a hub for managing projects that sync across 365 apps. Microsoft boasts that users can take advantage of intelligent suggestions, page templates, an insert menu, and use A.I. to coauthor content. The tool competes with Notion, another web app used by businesses like Adobe and Amazon that features organizational tools to help people keep track of documents and tasks for various projects.