Jack Dorsey, co-founder of Twitter Inc., speaks during the Bitcoin 2021 conference in Miami, Florida, U.S., on Friday, June 4, 2021.
Eva Marie Uzcategui | Bloomberg | Getty Images
Shares of Jack Dorsey’s Block plunged over 18% after short-seller Hindenburg Research announced the payment company was its latest short position, alleging that the company allowed criminal activity to operate with lax controls and “highly” inflates Cash App’s transacting userbase, a key metric of performance.
The short-seller described Block’s know-your-customer efforts as a “‘Wild West’ approach to compliance.”
Hindenburg’s extensive report includes screenshots of internal systems and employee messages.
“Our 2-year investigation has concluded that Block has systematically taken advantage of the demographics it claims to be helping,” the short seller said in its report. The research firm said that Block’s Cash App thrived on serving “unbanked” customers.
The report alleges those unbanked customers were involved in criminal or illicit activity. Hindenburg also alleged that Cash App’s compliance programs were deficient.
As part of its two-year investigation, Hindenburg spoke with multiple former employees who described how internal concerns were suppressed and user concerns were ignored, even as alleged “criminal activity and fraud ran rampant on its platform.”
Citing interviews with former employees, Hindenburg alleged that “pressure from management has resulted in a pattern of disregard for Anti-Money Laundering (AML) and Know Your Customer (KYC) laws.”
The report notes that “this appeared to be an effort to grow Cash App’s user base by strategically disregarding Anti Money Laundering (AML) rules.”
To test the theory, the short seller opened accounts in the name of former President Donald Trump and Tesla CEO Elon Musk, and then opened a Cash App card, called the Cash Card, under the “obviously fake Donald Trump account,” the report said.
The card bearing Trump’s name arrived “promptly” in the mail.
“Former employees estimated that 40%-75% of accounts they reviewed were fake, involved in fraud, or were additional accounts tied to a single individual,” the report said.
Representatives for Block did not immediately respond to a request for comment.
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