Shares of Block Inc declined 20% in trade to after short seller Hindenburg disclosed that it holds short positions in Jack Dorsey‘s firm. Hindenburg had earlier today in a tweet hinted at its new report to be released soon, days after it hit out on India’s Adani group, taking the market capitalisation of the entire group down by 50%. Hindenburg alleges that Block has overstated its user counts and understated its customer acquisition costs.
“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,” said Hindenburg.
The short seller alleges that Block Inc’s growth is not due to its disruptive innovation but fraudulent practices. “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,” said Hindenburg after it investigated the company for 2 years.
Block Inc., formerly known as Square Inc., is a $44 billion market capitalisation company.