Cash App fraud Accusation Falls Block Share Price

Witness of  a sharp decline in Block share price on Thursday after Jack Dorsey-led company, Cash App fraud accusation surfaces.

Block (previously known as Square), according to reputable short seller Hindenburg Research, encouraged criminal activity by adopting a “Wild West” attitude toward compliance, which “made it easy for malicious people to create bulk accounts for identity fraud and other scams, then transfer stolen funds quickly.”

The allegations followed what the company claimed to be a two-year probe. Block’s Cash App, a peer-to-peer payment system that enables users to send money to friends and family, was the primary target of criticism.

“CEO Jack Dorsey tweeted that users could get government payments through Cash App ‘immediately’ with ‘no bank account needed’ due to its frictionless technology,” the report reads. “Within weeks of Cash App accounts receiving their first government payments, states were seeking to claw back suspected fraudulent paym ents—Washington State wanted more than $200 million back from payment processors while Arizona sought to recover $500 million, former employees told us.”

One of the most captivating allegations is that Cash App has illegal connections. According to the report, the malicious people rapidly embraced the platform because it was simple for them to maintain their anonymity (using false identities) and because, should their accounts be closed, they could easily re-register on it.

When Fast Company contacted Block for comment regarding the report, Block did not reply. But the business said in a statement to CNBC: “We plan to work with the SEC and investigate legal action against Hindenburg Research for the factually incorrect and misleading report they shared about our Cash App business today. . . . .

These attacks, which are only intended to let short sellers benefit from a falling stock price, are typical of Hindenburg. After reviewing the entire report in light of our own data, we are of the opinion that it is intended to mislead and confuse buyers. Our products, reporting, compliance programs, and controls are solid, and we are a highly regulated public business with frequent disclosures. We won’t be sidetracked by common short selling strategies.

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Cash App and Hip-hop Controversies

Rappers have been using the fin-tech platform as a way to engage with fans for a while now. CultureBanx noted it’s easy to see how hip-hop influencers and their loyal followers grew Cash App’s monthly active users from seven million in 2017, to 30 million in 2020. In turn, these users also gained the attention of those in search of higher-end services like Bitcoin and general investing.

First created back in 2013, Cash App’s valuation is almost two-thirds of Square’s current $65 billion market value. Since hitting a pandemic low in March, Cash App’s parent company has seen its share price nearly quadruple. Even with the 1.5% fee the company charges users to to transfer funds to a bank account.

Researchers at the Federal Reserve Bank of San Francisco found that cash was used in just 26% of consumers’ monthly payment transactions in 2018, down from 33% in 2015. Additionally, the volume of money Americans transfer to one another through mobile phones is expected to increase 26% in 2019 to $211 billion, according to research firm eMarketer.

Hip-hop artists claim to use Cash App for everything from drug trafficking and prostitution to paying hit men in the hundreds of songs that reference it. (According to the story, Dorsey boasted about the app’s popularity with musicians at investor conferences hosted by JPMorgan in May 2020 and 2021).

Square’s Cash App ranks as number four, behind JP Morgan and Bank of AmericaBAC +5%. The company also noted that Square benefited from an influx of money (including stimulus checks) into the Cash App. Some investors are concerned that the one-time nature of the government stimulus makes Cash App’s current growth rate a little skeptical.

Block seemed to embrace the controversy, promoting a video for a song called “Cash App,” which described paying contract killers through the app.

“The song’s artist was later arrested for attempted murder,” the report reads. “There is even a gang named after Cash App: In 2021, Baltimore authorities charged members of the ‘Cash App’ gang with distribution of fentanyl in a West Baltimore neighborhood, according to news reports and criminal records.”


Cash App Fraud Accusations by Short Seller

Hindenburg Research is an activist short seller, but the company’s track record is admired among investors. Two months ago, it issued an explosive report focused on Adani Group that erased $100 billion off the Indian conglomerate’s market cap. Other affected companies include Clover Health and Nikola. Since 2020, Bloomberg reports, the company has targeted roughly 30 businesses, which saw their shares drop 15% on average the next day. At 2:30 PM ET, Block stock were down about 15%.

The Hindenburg report further alleges that Cash App ignored concerns from both employees and users even as alleged “criminal activity and fraud ran rampant on its platform.”

“This appeared to be an effort to grow Cash App’s user base by strategically disregarding Anti Money Laundering (AML) rules,” it reads.

Hindenburg also alleges former employees told it that Block had disregarded “Know Your Customer” laws, which require financial institutions and financial services companies to establish a customer’s identity.

In an attempt to confirm this, the firm says it opened accounts under the names of Donald Trump and Elon Musk, quickly acquiring a Cash App debit card bearing Trump’s name.

“Former employees estimated that 40% to 75% of accounts they reviewed were fake, involved in fraud, or were additional accounts tied to a single individual,” the report said.

In order to promote growth and profit from the facilitation of fraud against consumers and the government, Hindenburg wrote, “We believe Block has misled investors on key metrics, and adopted predatory offerings and compliance worst-practices.” “We also think Jack Dorsey has accumulated a $5 billion personal fortune while professing to care a great deal about the demographics he is exploiting. Having already sold over $1 billion in equity on Block’s meteoric rise during the pandemic, Dorsey and other top execs have made sure they will be okay regardless of what happens to everyone else.

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