Block Accused of ‘Wild West Approach’ to Compliance
Block saw its stock tumble Thursday (March 20) after a short seller accused it of misleading investors.
A report by Hindenburg Research, which the firm said is the result of a two-year investigation, said the payments company inflated the user base of its Cash App money transfer platform and allowed criminal activity to occur there.
“Core to the issue is that Block has embraced one traditionally very ‘underbanked’ segment of the population: criminals,” the report said. “The company’s ‘Wild West’ approach to compliance made it easy for bad actors to mass-create accounts for identity fraud and other scams, then extract stolen funds quickly.”
PYMNTS has reached out to Block for comment but has not yet received a reply. The company’s stock, down 56% over the last year, fell 20% Thursday.
Former employees of Block estimated that between 40% and 75% of the accounts they reviewed were either phony, tied to fraud or were additional accounts connected to one person, the report stated. When users were caught engaging in fraud, Block blacklisted their account, but not the user themselves.
Additionally, Cash App was allegedly use by criminals in sex trafficking, COVID-related fraud, hiring killers and more, according to the report.
Founded by Twitter co-creator Jack Dorsey, Block’s businesses include Cash App, the retail point-of-sale solution Square, and buy now, pay later (BNPL) firm Afterpay.
Last month, the company said it was on the path to profitability while acknowledging the journey could be a long one after reporting a $114 million loss for the closing quarter of 2022.
As PYMNTS noted, the company’s Chief Financial Officers and Chief Operating Officer Amrita Ahuja put an upbeat spin on the earnings results in a CNBC interview.
“What’s really exciting to me is to see increasing daily utility across each of these ecosystems. Square sellers who took on four or more of our monetized products made up 44% of our gross profit in 2022. It’s up 15 points over three years,” she said, per the report.
Cash App, meanwhile, now has five revenue streams that delivered $100 million or more in gross profit in 2022.
“So, our customers are finding great value through our platforms, increasing daily utility, and ultimately that’s leading to a more diverse and broad business for us,” said Ahuja.