US short seller declares Block after claims it misled investors

We are short shares of Block Inc, declared US short seller Hindenburg Research on Friday as the company's response to its allegations that it had reported inflated user counts on its Cash App to investors for years. The payments firm, led by Twitter co-founder, said on Thursday that 44 million of its more than 51 million monthly active customers on Cash App were verified through its identity program as of December 31.

According to a note published on its website, Hindenburg said that the previously reported 51 million monthly transacting actives as of December 2022 represented a 16% -- 31% inflation of its actual internal user counts.

The disclosure follows Hindenburg Research's report last week, which said former Block employees estimated 40% to 75% of accounts they reviewed were fake, involved in fraud or were linked to a single individual.

According to the report, Hindenburg alleged that the payments firm overstated its Cash App user numbers and understated its customer acquisition costs after taking a short position in Block.

Short sellers usually sell borrowed securities and aim to buy these back at a lower price.

Hindenburg said on Friday that Block completely ignored our questions around interchange revenue, including how it avoided regulation meant to cap fees to merchants.

In 2009, Block was co-founded in his San Francisco apartment with the goal of shaking up the credit card industry.

Block failed to respond and did not provide any clarification on its promotion of illegal activity on its platform, according to the US short seller whose accusations against Adani Group led to the conglomerate's market value falling by $125 billion earlier in January.