Shares of Block, the company behind Cash App, plunged by 20% Thursday morning after the release of a searing report from short-seller Hindenburg Research that accused Jack Dorsey’s company of allowing fraudulent accounts that obscure criminals involved in illegal or illicit activities, including the sex trafficking of minors.
Hindenburg says it led a two-year investigation into Block, which also owns Square, Weebly, Afterpay and music-streaming service Tidal, and that found that “Block has systematically taken advantage of the demographics it claims to be helping.”
Block is not a disruptive innovator, claims the report, but instead benefits from “a willingness to facilitate fraud against consumers and the government, avoid regulation, dress up predatory loans and fees as revolutionary technology, and mislead investors with inflated metrics.”
The report claims that Block is regulated like the “Wild West” and allows fraudulent accounts, which gives cover for criminals involved in illegal or illicit activities, including the sex trafficking of minors.
The report cites “numerous indictments by the Department of Justice, which detail Cash App’s use to facilitate sex, including with minors.” It also references a quote from Sara Crowe, senior director at the anti-human trafficking nonprofit Polaris Project, where she says that “when it comes to sex trafficking in the US, by far the most commonly referenced platform is Cash App.”
Hindenburg alleges that there is even a Baltimore-based gang named after Cash App. In 2021, members of the “Cash App” gang were charged with distributing fentanyl, the report said.
In a statement to CNN, Block called the report “factually inaccurate and misleading,” and said it intends to work with the Securities and Exchange Commission and explore legal action against Hindenburg.
“Hindenburg is known for these types of attacks, which are designed solely to allow short sellers to profit from a declined stock price. We have reviewed the full report in the context of our own data and believe it’s designed to deceive and confuse investors,” Square wrote.
Hindenburg has made a name for itself by publishing explosive reports about businesses and short-selling the stocks of the companies associated with them.
The company rose to fame through its attacks on Adani and truck maker Nikola. Shortly after Hindenburg made accusations against Nikola, the company’s founder and former executive chairman Trevor Milton was convicted in a federal court of one count of securities fraud and two counts of wire fraud. He faces years in prison.
Hindenburg has targeted nearly 30 companies since 2020, and on average their targets lost about 15% on the day the reports were released, according to Bloomberg calculations.