Activist investor Hindenburg Research responded to Block\u2019s statement on Hindenburg\u2019s earlier report justifying its short position, which was published earlier this month. Hindenburg stated in their response that Block had inflated user metrics when reporting to investors and also did not deny promoting a song about CashApp being used to pay for murder, among other things.<\/p>\n
Hindenburg Research has released a new report in response to Block\u2019s reaction to the fraud allegations that Hindenburg had made against the fintech company earlier this month. In the report, Hindenburg claims that Block did not deny its earlier allegations that the company had paid to promote a song called \u201cCash App\u201d by 22Gz, which allegedly detailed how one can quickly pay for murder using the Cash App.<\/p>\n
The short seller said it provided evidence in its initial report \u201cthat Block paid to promote a song and video called \u201cCash App\u201d by 22Gz. The song detailed how easy it was to use Cash App to pay hitmen to murder rival gang members.\u201d However, Block \u201chas said nothing\u201d in reply to these claims, Hindenburg alleges in the new report.<\/p>\n
In addition, Hindenburg says that Block\u2019s response to its initial report confirmed the short seller\u2019s allegations that Jack Dorsey\u2019s company has been inflating user numbers for years. The activist investor says Block\u2019s recently released internal estimates of Cash App user count differed significantly from the number of \u201ctransacting actives\u201d reported publicly to investors.<\/p>\n
According to Hindenburg, Block reported 39 million unique Social Security Numbers (SSNs) and 44 million verified accounts that use Cash App. Still, in its September 2022 user count disclosures, Block said 80 million annual transacting actives use the app. The inflated numbers were used \u201cas a justification\u201d for Block\u2019s acquisition of Afterpay, Hindenburg states in the report.<\/p>\n
Further in the report, Hindenburg also accused Block of \u201cvaguely\u201d conceding how its fraud expenses during the Covid-19 pandemic increased. But the company did not provide specific figures, the short seller alleged.<\/p>\n
In its initial report, Hindenburg said it outlined specific compliance gaps that led to Block facilitating billions of dollars in coronavirus relief fraud. But in its response, Block offered only a high-level defense of its compliance controls and only said it noticed \u201can increase during 2020\u201d of risk loss, Hindenburg states. Further, the fintech company did not provide estimates of the losses incurred by the US government and taxpayers due to its \u201cfacilitation of illegitimate pandemic relief payments,\u201d Hindenburg added.<\/p>\n
In its first report released on Mar. 23, Hindenburg said it shorted Block\u2019s stock, accusing the company of \u201cfrictionless\u201d fraud, among other things. Block issued a prompt response, saying Hindenburg\u2019s allegations were \u201cinaccurate and misleading,\u201d adding it intends to work with US regulators to explore legal action against the activist investor.<\/p>\n
This article originally appeared on The Tokenist<\/i><\/p>\n
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