Hindenburg: Block Has Inflated User Metrics and Enabled Insiders To Cash Out Over $1 Billion

Short seller Hindenburg Research, on Block: Block, formerly known as Square, is a $44 billion market cap company that claims to have developed a "frictionless" and "magical" financial technology with a mission to empower the "unbanked" and the "underbanked." 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 revolutionary technology, and mislead investors with inflated metrics. Our research involved dozens of interviews with former employees, partners, and industry experts, extensive review of regulatory and litigation records, and FOIA and public records requests. Most analysts are excited about the post-pandemic surge of Block's Cash App platform, with expectations that its 51 million monthly transacting active users and low customer acquisition costs will drive high margin growth and serve as a future platform to offer new products. Our research indicates, however, that Block has wildly overstated its genuine user counts and has understated its customer acquisition costs. Former employees estimated that 40%-75% of accounts they reviewed were fake, involved in fraud, or were additional accounts tied to a single individual. Core to the issue is that Block has embraced one traditionally very "underbanked" segment of the population: criminals. 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. Even when users were caught engaging in fraud or other prohibited activity, Block blacklisted the account without banning the user. A former customer service rep shared screenshots showing how blacklisted accounts were regularly associated with dozens or hundreds of other active accounts suspected of fraud. This phenomenon of allowing blacklisted users was so common that rappers bragged about it in hip hop songs. 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.

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