Billionaires Dorsey, McKelvey Profited From Block’s ‘Rampant’ Fraud, Hindenburg Alleges

Topline

Mobile payment giant Block falsely inflated its stock’s value by lying about internal metrics, allowing company insiders including billionaires Jack Dorsey and Jim McKelvey to profit wildly, according to a bombshell report from activist investing firm Hindenburg Research released Thursday morning.

Jack Dorsey’s Block is facing some major allegations from short seller Hindenburg.

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Key Facts

Hindenburg, which has previously launched activist campaigns against the empire of Indian billionaire Gautam Adani and Hydrogen vehicle firm Nikola, disclosed in the report it took a short position in Block’s stock.

Block “wildly overstated its genuine user counts” and “understated its customer acquisition costs,” according to Hindenburg, alleging the Cash App and Square parent company improperly propped up its share price.

Shares of Block slid 19% in early trading, wiping out nearly $9 billion in market capitalization.

“As Block’s stock soared on the back of its facilitation of fraud, co-founders Jack Dorsey and James McKelvey collectively sold over $1 billion of stock during the pandemic,” Hindenburg notes.

Block, its CEO Dorsey and McKelvey have yet to comment on the matter.

Crucial Quote

“The ‘magic’ behind Block’s 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,” Hindenburg claimed.

Forbes Valuations

Dorsey, who cofounded Block and social media giant Twitter, is worth $4.7 billion, according to Forbes’ latest estimates. McKelvey, a Square cofounder and board member, is worth $1.6 billion.

Key Background

Block, known as Square until late 2021, describes itself as a “overarching ecosystem of many businesses united by their purpose of economic empowerment” which “serves many people—individuals, artists, fans, developers, and sellers” through its Square business technology platform and Cash App peer-to-peer mobile payment service. Unfortunately, Cash App also serves as a safe haven criminals, as a November Forbes investigation revealed. Hindenburg noted the prevalence of illegal payments on Cash App in its report.

Big Number

More than 500%. That’s how much Block shares skyrocketed between April 2020 and August 2021, peaking at over $280. The stock tumbled back to its pre-pandemic level over the ensuing 19 months.