Hindenburg Research Dropped a Bomb at Former Twitter CEO Jack Dorsey: Check Full Details Here!

Jack Dorsey, who recently lost out Twitter to billionaire Elon Musk, has been dealt another blow. This time by none other than the short-selling firm Hindenburg Research! Yes, the same firm that shook Gautam Adani and his business to the core. 

Block Inc, formerly known as Square Inc, is accused by Hindenburg Research of fraud against its customers and the government.

 Before we move forward, let me give you a brief intro about the company. Block Inc was co-founded by Jack Dorsey and Jim Mckelvey in 2009, amidst the latter finding it very hard to complete a transaction for his "glass faucets and fittings."

 Cutting the complexity aside, Block Inc provides a platform for people to make transactions, alongside providing businesses to employ marketing strategies and manage inventory, staff, and finances.

 Block carries out its operations mainly through the “Square Point of Sale system,” a product developed by the company that allows merchants to accept credit card payments through a mobile device.

The company also expanded its services to include other financial products such as Square Capital, a lending program for small businesses, and Cash App, a mobile payment app that allows users to buy and sell Bitcoin.

 Now that you understand the company, let us take a look at what the Hindenburg reports have to say about it:

●       Hindenburg raised questions on the "frictionless" and "magical" financial technologies developed by Block to favor people who don't have a bank account or prefer using alternative financial services.

●       Hindenburg claimed that its research, spanning over 2 years, has led them to the notion that the "financial technologies" were nothing short of fraudulent activities by the company, jeopardizing its customers and the government alike.

●       The statement read, "Our 2-year investigation has concluded that Block has systematically taken advantage of the demographics it claims to be helping. The “magic” behind Block’s business has not been disruptive innovation, but rather the company’s willingness to facilitate fraud against consumers and the government, avoid regulation, dress up predatory loans and fees as a revolutionary technology, and mislead investors with inflated metrics."

●       The Hindenburg report claims that "40%-75% of accounts they reviewed were fake, involved in fraud, or were additional accounts tied to a single individual."

●       The report stated that it found countless shreds of evidence where Block Inc didn't ban the user even after finding wrongdoings and fraud-related activities. Hindenburg asked the alleged company to clear out the "actual" number of people that uses the services in its reports.

●       It also stated that the company's focus on empowering the "underbanked" section of people aided the criminals to carry out their activities and transactions swiftly! Cash App, allowing users to make payments outside the square network, is reported to be the most used app for "sex trafficking" in the US.

●       Other violations, such as scams, drug trafficking, and payments for murders, are also facilitated through the Cash App, according to the reports published by Hindenburg.

●       Another interesting allegation against Block is its connection with rappers and gangs convicted of "murder" and other criminal activities. Heinous crimes, such as sex trafficking of minors, are some of the freezing allegations leveled against Block Inc.

●       The vast number of fake accounts and users is also a concern for people and investors. Hindenburg claimed that it found numerous accounts named after its owner "Jack Dorsey," former US President "Donald Trump," and "Elon Musk."

●       The Hindenburg reports also accused Block of committing fraud in the Covid-19 relief payments. The "frictionless" technology endorsed by Jack Dorsey during the pandemic was actually a way to scam people and paved the way for "Pandemic relief fraud."

●       "Permitting single accounts to receive unemployment payments on behalf of multiple individuals" and "ineffective address verification" by Block Inc led to fraud in the “pandemic-related unemployment payments schemes” undertaken by the government.

●       The report further sharpened its stance by mentioning rapper “Nuke Bizzle,” who was caught by the Police on charges of Covid fraud and his payment through the Cash App. These fraudulent activities, however, resulted in a hike in the stock prices of Block, rising 639% in 18 months during the pandemic.

●       The Hindenburg report also claims that the founders sold over $1 billion of stock during the pandemic, while other high-ranked members of the company made millions by selling stocks.

●       It was also reported that Block Inc made a serious violation by avoiding "Interchange fees," a vital banking regulation meant to protect merchants. The "Interchange fees" are charged by substantial banks that have over $10 billion in assets.

●       Despite having more than $30 billion in assets, Block avoids the "Interchange fees" by facilitating payments through small banks.

●       The revenue stream of Block Inc is also vague, as per the reports. The Credit Suisse reports of 2022 stated that 1/3rd of the revenue for Cash App generates from "opaque sources."

●       Block's acquisition of the "buy now pay later" service Afterpay is also under consideration. Although the company promises no interest, the charges levied on missing out on the “payback date” soared as high as 289%.

●       The fundamentals of Block Inc are also "wobbly!" The investigations by Hindenburg showed a decreasing amount of 65% to 75% in Block shares. In 2022, Block released a report that showed a 1% year-over-year revenue decline and a GAAP loss of $540.7 million. Experts even believe that the GAAP loss will only widen in the future and predicts that the company might never be profitable again!

●       Even then, Block is marked as a profitable company with growth potential. It is valued at an EV/EBITDA multiple of 60x; a forward 2023 “adjusted” earnings multiple of 41x; and a price-to-tangible book ratio of 13.1x, which are "frivolous" compared to the fundamentals.

●       Hindenburg considers Block has misled investors on basic and essential metrics and used illegal methodologies to fuel growth and profit from the facilitation of fraud against consumers and the government.

Conclusion: It would be interesting to note how Block and its founder Jack Dorsey respond to the reports released by Hindenburg. There are several questions on different aspects, and it will create a cloud of skepticism among the investors and users of Block and its technologies. Dorsey has to punch above his belt to restore the smooth functioning of the company, as the allegations leveled are top-notch and highly capable of running down the organization.