- Block Inc. has been accused of fraudulent behavior and inflating metrics in a two-year investigation.
- The investigation found that Block has systematically taken advantage of the demographics it claims to be helping and misled investors with inflated metrics.
- Cash App, Block's platform, has been overrun with scam accounts and fake users.
Jack Dorsey’s Block, the $44 billion market cap company formerly known as Square, has been accused of fraudulent behavior and inflating metrics in a two-year investigation, according to Hindenburg Research.
The report says that the company claims to have developed a “frictionless” and “magical” financial technology with a mission to empower the “unbanked” and the “underbanked.” However, it found that Block has systematically taken advantage of the demographics it claims to be helping.
Block’s inflated metrics and fraudulent behavior
According to the investigation, Block’s “magic” behind its 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.
The research involved dozens of interviews with former employees, partners, and industry experts, extensive review of regulatory and litigation records, and FOIA and public records requests, says Hindenburg Research.
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.
Cash App, Block’s platform, has been overrun with scam accounts and fake users, according to numerous interviews with former employees.
Examples of obvious distortions abound: “Jack Dorsey” has multiple fake accounts, including some that appear aimed at scamming Cash App users. “Elon Musk” and “Donald Trump” have dozens.
Block obfuscates how many individuals are on the Cash App platform by reporting misleading “transacting active” metrics filled with fake and duplicate accounts. Block can and should clarify to investors an estimate of how many unique people actually use Cash App.
Role in facilitating pandemic relief fraud
The COVID-19 pandemic and nationwide lockdowns posed an existential threat to Block’s key driver of gross profit at the time, merchant services. In this environment, amid Cash App’s anti-compliance free-for-all, the app facilitated a massive wave of government COVID-relief payments.
CEO Jack Dorsey Tweeted that users could get government payments through Cash App “immediately” with “no bank account needed” due to its frictionless technology.
Within weeks of Cash App accounts receiving their first government payments, states were seeking to claw back suspected fraudulent payments.
Once again, the signs were hard to miss, says Hindenburg. Rapper “Nuke Bizzle” made a popular music video about committing COVID fraud.
Several weeks later, he was arrested and eventually convicted for committing COVID fraud. The only payment provider mentioned in the indictment was Cash App, which was used to facilitate the fraudulent payments.
Block had obvious compliance lapses that made fraud easy, such as permitting single accounts to receive unemployment payments on behalf of multiple individuals from various states and ineffective address verification.
In an apparent effort to preserve its growth engine, Cash App ignored internal employee concerns, along with warnings from the Secret Service, the U.S. Department of Labor OIG, FinCEN, and State Regulators which all specifically flagged the issue of multiple COVID relief payments going to the same account as an obvious sign of fraud.
With Block facing threats from key competitors and accusations of fraudulent behavior, it remains to be seen how the company will fare in the future.