In a shocking revelation, Block Inc. shares took a dive after Hindenburg Research revealed that it had taken a short position in the financial technology company. As of Thursday, shares had plummeted by 15%, causing great concern among investors.
Hindenburg’s research, which spanned over two years, revealed that the multinational conglomerate had an enormous number of fake or duplicate accounts at its widely celebrated Cash App platform. Even more concerning was that the research alleged that many of those accounts were involved in criminal activities, including sex trafficking.
Hindenburg’s report stated, “Block has misled investors on key metrics and embraced predatory offerings and compliance worst-practices to fuel growth and profit from facilitation of fraud against consumers and government.” Block denied the allegations and said it was exploring legal action against the short seller.
In February, Block reported that its monthly active users increased 16% YoY to 51 million in December. However, Hindenburg took issue with the fact that Block’s top executives, including CEO Jack Dorsey, had sold more than $1.0 billion worth of company shares to benefit from the pandemic-driven rally.
In response to the allegations, Block reiterated that it was a highly regulated public company and that it would work with the SEC and explore legal action against Hindenburg for the factually inaccurate and misleading report about Cash App business.
Despite the scandal, Wall Street maintained an optimistic view of Block, with a consensus overweight rating on “SQ” coupled with an average price target of $98 – up 60% from its current value.
The Hindenburg report has certainly caused quite a stir in the financial technology industry, and only time will tell how the situation unfolds.