Block Responds to Short Seller Hindeburg’s Damning Allegations: “Factually inaccurate”

Last week Block (NASDAQ:SQ) fired back at noted short-seller Hindenburg Research’s hit piece that lambasted the Fintech’s operations. The report by Hindenburg did not mince words describing Block as having embraced one traditionally very “underbanked” segment of the population: criminals.

Block quickly responded, stating that Hindenburg is known for these types of attacks describing it as designed to deceive and confuse investors.

“We intend to work with the SEC and explore legal action against Hindenburg Research for the factually inaccurate and misleading report they shared about our Cash App business today.”

Adding that:

“… former employees estimated that 40%-75% of accounts they reviewed were fake, involved in fraud, or were additional accounts tied to a single individual.”

Today, Block has published its thoughts on Hindenburg’s musings, stating:

“As of December 2022, Cash App had more than 51 million monthly transacting actives. Of these, approximately 44 million were connected to an identity verified through our Identity Verification (IDV) program. Many of the remaining accounts will eventually go through IDV as they increasingly engage with the Cash App platform. Approximately 13% of the unverified accounts as of December 2022 have completed IDV so far in 2023 as of the date of this release. The 44 million verified accounts represented approximately 39 million unique Social Security numbers as of December 2022 (we use Social Security number as a logical, unique identifier to estimate the number of identities in this analysis).”

The 44 million verified accounts are said to account for 97% of Cash App inflows in December 2022.

As part of its account review process, Block says that for the first 30 days, a user may transfer $1000 before being verified. At that time, the individual must provide their “full name, date of birth, address, and Social Security number, as well as government-issued photo ID in some cases.”

Block states that its AML/KYC processes are in line with other financial services firms, and they utilize both in-house and third-party services to review users.

Addressing the allegations of nefarious activity, Block states that it’s challenging to arrive at definitive estimates of the amount of fraud and illicit activity, but during 2022, approximately 2.4% of Cash App transacting active accounts were denylisted by their Compliance and Risk teams.

“We remain dedicated to complying with all applicable legal requirements, and we will continue to invest significantly in compliance and other practices that enable us to democratize access to the financial system.”

Shares in Block are up around 3% today on an overall up-market day but still below the days before Hindenburg pummeled the firm.


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