Sunday, June 16, 2024

Block’s Cash App platform has 40-75% accounts fake, involved in fraud, claims Hindenberg

US-based short seller Hindenburg Research on 23 March released a new report in which it alleged Block, Inc. (SQ), founded by Jack Dorsey, wildly overstated its genuine user counts and has understated its customer acquisition costs through its Cash App platform.

According to Block’s former employees, with whom Hindenberg claims to have spoken, say they estimated that 40%-75% of accounts they reviewed were fake, involved in fraud, or were additional accounts tied to a single individual.

Apart from this, Hindenberg claims Block has embraced one traditionally very ‘underbanked’ segment of the population — criminals.

As per Hindenberg, the company’s ‘Wild West’ approach to compliance made it easy for bad actors to mass-create accounts for identity fraud and other scams, then extract stolen funds quickly.

ALSO READ: After Adani, Hindenburg accuses Block of $1B fraud and misleading investors

“Even when users were caught engaging in fraud or other prohibited activity, Block blacklisted the account without banning the user,” the report said.

The US Short-seller even stated that a former customer service representative shared screenshots showing how blacklisted accounts were regularly associated with dozens or hundreds of other active accounts suspected of fraud. The phenomenon of allowing blacklisted users was so common that rappers bragged about it in hip hop songs, it added.

“Block obfuscates how many individuals are on the Cash App platform by reporting misleading ‘transacting active’ metrics filled with fake and duplicate accounts. Block can and should clarify to investors an estimate on how many unique people actually use Cash App,” Hindenberg sought a reply in its research.

Earlier, CEO Jack Dorsey had publicly touted how Cash App is mentioned in hundreds of hip hop songs as evidence of its mainstream appeal. Hindenberg claims the review of those songs show that the artists are not generally rapping about Cash App’s smooth user interface.

Citing a leading non-profit organization, Hindenberg even claimed that Cash App was also cited ‘by far’ as the top app used in reported U.S. sex trafficking. It mentioned that multiple Department of Justice complaints outline how Cash App has been used to facilitate sex trafficking, including sex trafficking of minors.

Among other things, Hindenberg claimed, citing local news reports, that there’s a gang named after Cash App, as in 2021, Baltimore authorities charged members of the ‘Cash App’ gang with distribution of fentanyl in a West Baltimore neighborhood.

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