Shares of Jack Dorsey’s Block Tumble As Short Seller Alleges Fraud

Shares of Block (SQ), the mobile payments provider founded by Jack Dorsey, are plunging after short seller Hindenburg Research accused the company of facilitating fraud and entered a short position against it.

Block, formerly named after its flagship app Square, is a payments provider tailored toward small and medium-sized businesses and individuals with limited access to banking services. The company’s signature apps include Square, which accepts credit card payments, and Cash App, which allows users to transfer money.

After a two-year investigation of the company’s practices, Hindenburg alleged in a report released Thursday that Block “has systematically taken advantage of the demographics it claims to be helping.”

The short seller attributed the company’s success not to disruptive innovation, but to its “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.”

Hindenburg’s research involved dozens of interviews with former employees, partners, and industry experts, and an extensive review of regulatory and litigation records. Former employees disclosed that between 40% and 75% of accounts with the company were “fake, involved with fraud, or were additional accounts tied to a single individual.”

The short seller alleges that Block also skirted regulatory requirements in what it has described as a “Wild West” approach to compliance. This made it easy for “bad actors to mass-create accounts for identity fraud and other scams,” Hindenburg said.

The report also alleged that as the value of the company’s stock surged during the pandemic, co-founders James McKelvey and Jack Dorsey collectively sold over $1 billion of stock, with the company misappropriating COVID-19 relief funds due to the presence of fraudulent accounts.

Shares of Block are down nearly 14% at 1pm E.T., and have fallen into negative territory for the year.