New York-based investment firm Hindenburg Research (hereafter referred to as HR) announced on the 23rd a negative report on Block Inc. (formerly Square), led by Jack Dorsey. The company alleged that it inflated user numbers to mislead investors and failed to address fraudulent accounts and fraudulent activity.

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Block—How Inflated User Metrics and “Frictionless” Fraud Facilitation Enabled Insiders To Cash Out Over $1 Billionhttps://t.co/pScGE5QMnX $SQ

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—Hindenburg Research (@HindenburgRes) March 23, 2023

Over the course of two years, HR conducted extensive research, including dozens of interviews with former employees, partners and industry experts, as well as reviews of regulatory and legal records, and requests for public records.

The company summarizes the survey results as follows.

Brock’s consumer finance app Cash App reportedly has 51 million monthly active users, but HR argued that most of the accounts could be fake. The report estimated that between 40% and 75% of the accounts verified by former employees were fake, involved in fraud, or were additional accounts for users.

Additionally, HR alleges that Cash App is being used for criminal activity.

HR said many of Cash App’s fake accounts were used to facilitate criminal activity, including fraud, prostitution and fraudulent receipt of government relief funds during the pandemic.

Many users used Cash App to receive payments from the government, but HR’s request for the release of official documents revealed that the number of benefits processed by Cash App’s partner banks was more than the number of bank accounts. It was “out of proportion”. A partner bank in Ohio, for example, said it received 10 times more applications than its peers.

Brock’s stock price soared 639% in the 18 months during the pandemic as the business grew rapidly as users increased. Block’s executives, including Jack Dorsey, sold shares totaling more than ¥130 billion ($1 billion) in response to the stock price rally, the report suggested.

Block’s management, meanwhile, has ignored internal complaints about criminal activity on its platform in pursuit of the company’s interests.

Block’s stock price plummeted by more than 20% at one point following HR’s announcement.

Block issued a statement on the same day. It told HR it plans to work with the Securities and Exchange Commission (SEC) to consider legal action against “unfounded and misleading reports” about its Cash App business.

Brock emphasized that it is a regulated public company and has confidence in its products, reporting, compliance programs and controls.