MARCH 23 (Portal) – Hindenburg Research announced short positions in Block Inc (SQ.N) on Thursday, claiming that the Jack Dorsey-led payments company overstated its user numbers and understated its customer acquisition costs.
Block’s shares slipped 20% to $57.85 in premarket trading after the report. If losses continue through the session, shares could post their biggest percentage drop since March 2020.
“Our two-year investigation has found that Block has been systematically exploiting demographics that are said to be helping,” the short seller said in a note posted to his website.
Block did not immediately respond to a Portal request for comment.
The US short seller behind a $100 billion-plus market plunge at India’s Adani group said in its report that former block employees estimated that 40% to 75% of the accounts they reviewed were fake, in Fraud involved or additional accounts tied to a single person.
Portal could not verify the claims made in the report.
Hindenburg added that Block “obfuscates” how many people are on the Cash App platform by reporting misleading “transaction activity” metrics filled with fake and duplicate accounts.
Hinderburg added that co-founders Jack Dorsey and James McKelvey collectively sold over $1 billion worth of stock during the pandemic as the company’s share price soared.
Other executives, including CFO Amrita Ahuja and Cash App lead manager Brian Grassadonia, also dumped millions of dollars in shares, the report added.
About 5.2% of Block’s free float was short as of March 22, according to Ortex data. The company’s ticker was the third most popular trend on the retail forum StockTwits.
Last month, Block said it was “sensibly slowing” the pace of hiring this year to control costs.
Founded in 2017 by Nathan Anderson, Hindenburg is a forensic financial research firm that analyzes stocks, credit and derivatives.
Hindenburg invests his own capital and takes short positions against companies. After a potential wrongdoing is identified, the company usually publishes a report explaining the case and bets against the target company in hopes of making a profit.
Short sellers typically sell borrowed securities with the aim of buying them back at a lower price.
Reporting by Manya Saini and Akriti Sharma in Bengaluru; Edited by Nivedita Bhattacharjee and Sriraj Kalluvila
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