Shulou(Shulou.com)11/24 Report--

On the morning of March 24, Beijing time, it was reported that Hindenburg Research, a short seller, announced that it would seek legal means to fight fraudsters after the short seller Hindenburg Research (Hindenburg Research) released a report accusing payment company Block of facilitating fraudsters.

Block shares fell 15% to close at $61.88 in regular trading on the New York Stock Exchange on Thursday, and fell as much as 22% at one point, the biggest intraday drop in three years. The wealth of the company's co-founder Jack Dorsey (Jack Dorsey) was also hit, shrinking by $526 million.

Hindenburg, a short seller run by Nathan Anderson, is famous for shorting the empire of billionaire Gautam Gautam Adani earlier this year. In a report posted on its website and on Twitter, the company said it had conducted a two-year investigation to write the short report. The chairman of Block is Jack Dorsey, co-founder of Twitter.

The Hindenburg investigation found that Block's popular Cash App may have facilitated fraudsters during the outbreak, allowing them to falsely claim government subsidies. In response to public inquiries from Hindenburg, Massachusetts said it planned to recover more than 69000 unemployment benefits from banks behind Cash App accounts. That is more than the subsidies they are trying to recover from big banks with more customers, such as JPMorgan Chase and Wells Fargo.

"Block ignored internal and external warnings and failed to notice that many people use the same bank account to receive government subsidies, which is a shameless fraud." "A number of key loopholes in Cash App's compliance process have resulted in billions of government dollars being obtained by fraudsters," Hindenburg said in the research newspaper.

Block, formerly known as Square, said in a statement that it planned to work with the Securities and Exchange Commission (SEC) and "seek legal action against the Hindenburg study because their report contains inaccurate and misleading information about our Cash App business." They added: "We have reviewed the full report on the basis of our own data and believe that its purpose is to deceive and confuse investors. We are a highly regulated listed company that regularly discloses information, and we are confident in products, reports, compliance procedures and controls."

According to statistics, since 2020, Hindenburg has shorted a total of 30 companies, which fell by an average of 15% the day after their short report, and an average decline of 26% six months later.

Hindenburg became even more famous after shorting Adani's business empire in January, causing stocks and bonds of 10 affiliated companies to fluctuate sharply. Although the group denies accounting fraud and share price manipulation, shares in Adani Enterprises, Adani's flagship company, have fallen 48 per cent since the report was released. Hindenburg's Twitter fans have flipped over, and now there are more than 500000.

When Hindenburg issued a short report against electric carmaker Nikola in September 2020, its share price plummeted and the company's founder, Trevor Milton, was criminally charged. He admitted to cheating investors in October last year.

Hindenburg claims to be a judicial research institution that operates with its own capital. But the company follows the standard procedure of so-called aggressive short sellers: after studying potential targets, shorting its stocks, then publishing short reports and using social media to spread bad news.

Block used to be the darling of the stock market, but that position has been shaken. The company's stock market capitalization, which reached nearly $130 billion in 2021, has fallen more than 75 per cent since August of the same year. Mr Dorsey and another Block co-founder, James Michaelway (James McKelvey), sold more than $1 billion of shares during the outbreak, Hindenburg said.

Investors have long been worried about Cash App and its competitors in mobile payments, such as Venmo, owned by PayPal. In recent months, these platforms have faced close attention because of their potential to facilitate fraudsters. But Hindenburg pointed out in the research newspaper that Cash App's problems don't stop there, and their compliance agreements are even flawed.

Hindenburg accused Block of exaggerating the number of Cash App users, citing a company statement saying that "some of these accounts may share alias identifiers with one or more other trading active accounts".

PayPal announced last year that it had closed 4.5 million accounts and lowered its growth forecast for new accounts after it found "bad elements" using its stimulus and reward programs. Since then, investors have been highly vigilant about such behaviour. PayPal has even abandoned its long-term goal of adding new users and instead focused on attracting existing customers to use it more frequently.

Transaction fees Hindenburg also targets so-called transaction fees charged by Block, which banks charge merchants when consumers pay with debit cards. It is also a key source of revenue for Cash App, which has an attached debit card provided by Sutton Bank.

But big banks are partnering with big technology companies through small regional banks. This is because Congress has capped credit card charges for large banks such as JPMorgan Chase and Bank of America, but smaller banks are not subject to this rule.

Hindenburg pointed out that PayPal has disclosed in the announcement that the company is facing an SEC investigation because of such problems, but there is no evidence that Block is facing a similar investigation.

In the wide-ranging short report, Hindenburg also targeted Block's $29 billion acquisition of Afterpay. Investor criticism of the deal has become more apparent as losses related to related loans have soared in recent quarters and regulators have begun to focus on the basic business of "buy and pay later".

"We think the stock is valuable, but we do worry about the prevalence of crime and its impact on consumer sentiment," the analyst said. " Investment bank Robert W. Baird & Co. "it's hard to know exactly what impact this will have, but in the worst case, if they cancel 20 per cent of their accounts, it will have an impact of about 8 per cent on total gross margins," said analysts David Koning and Robert Bamberger.

According to public data, Ark Capital of "wooden Sister" Cathie Wood owns about 1.66 per cent of Block and even bought the stock yesterday. The stock is also the fifth largest position in Ark Innovation ETF, the flagship fund of Ark Capital.

This is not the first time Block has been accused of misleading investors. Block shareholders filed a complaint last year accusing the company of disclosing a former employee's name and brokerage information through an announcement months after the incident. The announcement caused the company's share price to plummet.

Block shareholder Donna Esposito also specifically accused Dorsey and CFO Amelita Amrita Ahuja of involvement in the publication of misleading information and SEC documents.

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