Notorious short-selling firm Hindenburg Research has Square parent company Block Inc. in its crosshairs, accusing the company of fraud, predatory practices, and inflating user counts in a report released Thursday morning.

“In sum, we think Block has misled investors on key metrics, and embraced predatory offerings and compliance worst-practices in order to fuel growth and profit from facilitation of fraud against consumers and the government,” the firm wrote in its report.

As a disclaimer on the report, Hindenburg noted that it's taken a short position in shares of Block, formerly Square, Inc.


After the report was released early Thursday morning, Block shares plunged as much as 17% in pre-market trading from their previous close of $72.65. The company trades on the NYSE under the SQ ticker. Things got worse when markets opened, with shares falling below $58, the lowest they’ve been since the start of the year, before rebounding to around $63 at the time of writing. It's down nearly 13% today.

Block issued a statement early Thursday afternoon, saying that it will work with the United States Securities and Exchange Commission (SEC) and potentially pursue legal action against the firm for what it describes as a "factually inaccurate and misleading report."

"Hindenburg is known for these types of attacks, which are designed solely to allow short sellers to profit from a declined stock price," Block's statement reads. "We have reviewed the full report in the context of our own data and believe it’s designed to deceive and confuse investors."

"We are a highly regulated public company with regular disclosures, and are confident in our products, reporting, compliance programs, and controls," the statement continues. "We will not be distracted by typical short seller tactics."

Misleading user counts?

Hindenburg claims former Block employees told its investigators the company “wildly overstated” its user counts by as much as 75%, and that it intentionally relies on a “‘Wild West approach to compliance” to attract bad actors who create accounts in bulk for identity fraud and other scams.


The firm also accuses Block of blacklisting individual accounts that were found to have committed fraud, but not blacklisting users who had opened dozens of other accounts that they were allegedly using for criminal activity.

Hindenburg writes that it tested how easy it would be for a user to open accounts in someone else’s name by renaming two accounts “Donald Trump” and “Elon Musk.” The company even included a photo of a Cash Card it ordered with the name “Donald J. Trump.”

When it filed its 2022 annual report last month, Block reported Cash App had 51 million active users—up 16% from 2021.

Compliance concerns

The report argues that when the COVID-19 pandemic threatened its revenue from merchant point of sale services, Block “suppressed internal concerns and ignored user pleas for help as criminal activity and fraud ran rampant on the platform.”

In its 2019 annual report, Block (at the time still called Square) reported $4.7 billion total net revenue. Of that 65% came from transaction fees, 22% from its subscription and software business, 2% from hardware like the Square Terminal, and the rest from Bitcoin, according to a Securities and Exchange Commission filing.

Block makes money on Bitcoin when it buys and then sells it to users through its Cash App.

The following year, as the pandemic led to widespread lockdowns, Block saw transaction, subscription, and hardware revenue fall in the second quarter. But by the second half of 2020, things had started to turn around. Transaction fees rebounded because retailers were processing more “card not present” transactions, which command a higher fee. And Cash App helped grow the subscription category to $1.5 billion in revenue—an increase of 49% from the previous year.

By the end of 2022, subscription revenue had ballooned to $4.5 billion, almost equal to the company’s entire net revenue the year before the pandemic started.


The Hindenburg report alleges that Block’s Cash App grew so furiously because it was being used to fraudulently claim COVID relief payments and that the company ignored inquiries from federal and state law enforcement.

“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,” Hindenburg wrote in its report.

Harsh words for insiders

As Block’s stock price surged more than 600% during the pandemic, Hindenburg notes that Block co-founders Jack Dorsey and James McKelvey sold more than $1 billion worth of shares.

The report is especially critical of Dorsey, saying that he has been “professing to care deeply about the demographics he is taking advantage of.”

In 2020, Dorsey commented on how popular Cash App had become in hip-hop.

“We have a very mainstream customer for Cash App. And evidence of this is—I talked about this on the call, maybe on the stage before, but the number of hip-hop songs that include the phrase Cash App or even named Cash App is pretty incredible. I think it’s over 1,000 or 2,000 right now,” he said at the time.

Pop culture references to Cash App have become so prevalent that researchers have written academic papers on how it impacts financial inclusion in Black American communities. A 2022 paper concluded that “while Cash App allows participants the flexibility around scheduling transactions from any location, it introduces hidden fees and social media gamification strategies that compel unwanted financial risk (such as participation in sweepstakes).”

Little mention of crypto

Notably, the 17,000-word report only makes two mentions of Bitcoin, to say that in 2018 the company began allowing users to make BTC transactions with their Cash App accounts. The main focus of Hindenburg’s report is how Block buoyed its business during the pandemic.


If it had focused more on crypto, however, it wouldn’t be the first time that Hindenburg was critical of the crypto industry.

In late 2021, when the global crypto market capitalization hit an all-time high of $3 trillion, Hindenburg announced a $1 million bounty for “information leading to previously undisclosed details about cryptocurrency ‘stablecoin’ Tether’s backing.”

At the time, Tether had revealed in a report that only 10% of the reserves backing the stablecoin, which is pegged 1:1 with the U.S. dollar, were being held as cash and bank deposits. Almost half of Tether’s backing was being held as commercial paper, a form of unsecured, short-term debt issued by corporations.

Editor's note: This article was updated after publication to include Block's statement.

Daily Debrief Newsletter

Start every day with the top news stories right now, plus original features, a podcast, videos and more.