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Is Block (formerly Square) Committing Fraud on a Massive Scale?

Jack Dorsey's FraudA bombshell short seller report was released today by Hindenburg Research that accuses Jack Dorsey company Block (formerly Square) of facilitating “fraud against consumers and the government, avoid regulation, dress up predatory loans and fees as revolutionary technology, and mislead investors with inflated metrics.”

Ouch.  Shares have melted 20%.

Short sellers conduct forensic research on public companies, examining their financial reports, talking to ex-employees, gathering market data, talking to competitors, etc.  Then they take that data and paint as negative as possible a portrait of the company, hoping to provide by short-selling the stock prior to the release of the report.  So you have to take these reports with a grain of salt.

However, the fraud alleged here is pretty massive:

  • 40-75% of accounts are fake
  • Block has facilitated crime on an epic sale.  The report wryly notes that the chief “underbanked” segment that Block has been helping are criminals.
  • When accounts are blacklisted for fraud, they simply move on to other accounts.  “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.”
  • “Examples of obvious distortions abound: “Jack Dorsey” has multiple fake accounts, including some that appear aimed at scamming Cash App users.  “Elon Musk” and “Donald Trump” have dozens.  To test this, we turned our accounts into “Donald Trump” and “Elon Musk” and were easily able to send and receive money. We ordered a Cash Card under our obviously fake Donald Trump account, checking to see if Cash App’s compliance would take issue—the card promptly arrived in the mail.”

Here’s a couple nice zingers:

  • CEO Jack Dorsey has publicly touted how Cash App is mentioned in hundreds of hip hop songs as evidence of its mainstream appeal. A review of those songs show that the artists are not generally rapping about Cash App’s smooth user interface—many describe using it to scam, traffic drugs or even pay for murder. [See our compilation video on this here]
  • “I paid them hitters through Cash App”— Block paid to promote a video for a song called “Cash App” which described paying contract killers through the app. The song’s artist was later arrested for attempted murder.

It’s quite an entertaining read.


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