Block Inc. (Previously Known As SQUARE) A Payment Processor Is Accused In A New Hindenburg Research Report Of Facilitating Fraud
We thank Hindenburg Research for this information about Block Inc. and for funding the research necessary to document it. Source: https://hindenburgresearch.com/block/
SCARS NOTE: The following are allegations made by Hindenburg Research. We have no informed position on this research since SCARS was not a participant. We share this information to help our readers stay informed about potential and real threats in their day-to-day financial transactions.
Key Findings From The Hindenburg Research Report:
Block Inc., formerly known as Square Inc., is a $44 billion market cap company that claims to have developed a “frictionless” and “magical” financial technology with a mission to empower the “unbanked” and the “underbanked”.
Our 2-year investigation has concluded that Block Inc. has systematically taken advantage of the demographics it claims to be helping. 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.
Our research involved dozens of interviews with former employees, partners, and industry experts, extensive review of regulatory and litigation records, and FOIA and public records requests.
Most analysts are excited about the post-pandemic surge of Block Inc.’s Cash App platform, with expectations that its 51 million monthly transacting active users and low customer acquisition costs will drive high margin growth and serve as a future platform to offer new products.
Our research indicates, however, that Block has wildly overstated its genuine user counts and has understated its customer acquisition costs. Former employees estimated that 40%-75% of accounts they reviewed were fake, involved in fraud, or were additional accounts tied to a single individual.
Core to the issue is that Block has embraced one traditionally very “underbanked” segment of the population: criminals. The company’s “Wild West” approach to compliance made it easy for bad actors to mass-create accounts for identity fraud and other scamsScams A Scam is a confidence trick - a crime - is an attempt to defraud a person or group after first gaining their trust through deception. Scams or confidence tricks exploit victims using their credulity, naïveté, compassion, vanity, irresponsibility, or greed and exploiting that. Researchers have defined confidence tricks as "a distinctive species of fraudulent conduct ... intending to further voluntary exchanges that are not mutually beneficial", as they "benefit con operators ('con men' - criminals) at the expense of their victims (the 'marks')". A scam is a crime even if no money was lost., then extract stolen funds quickly.
Even when users were caught engaging in fraud or other prohibited activity, Block Inc. blacklisted the account without banning the user. A former customer service rep shared screenshots showing how blacklisted accounts were regularly associated with dozens or hundreds of other active accounts suspected of fraud. This phenomenon of allowing blacklisted users was so common that rappers bragged about it in hip-hop songs.
Block obfuscates how many individuals are on the Cash App platform by reporting misleading “transacting active” metrics filled with fake and duplicate accounts. Block can and should clarify to investors an estimate on how many unique people actually use Cash App.
CEO Jack Dorsey has publicly touted how Cash App is mentioned in hundreds of hip-hop songs as evidence of its mainstream appeal. A review of those songs show that the artists are not generally rapping about Cash App’s smooth user interface—many describe using it to scamScam A Scam is a confidence trick - a crime - is an attempt to defraud a person or group after first gaining their trust through deception. Scams or confidence tricks exploit victims using their credulity, naïveté, compassion, vanity, irresponsibility, or greed and exploiting that. Researchers have defined confidence tricks as "a distinctive species of fraudulent conduct ... intending to further voluntary exchanges that are not mutually beneficial", as they "benefit con operators ('con men' - criminals) at the expense of their victims (the 'marks')". A scam is a crime even if no money was lost., traffic drugs or even pay for murder. [See Hindenburg Researcg compilation video on this here – WARNING VERY EXPLICIT ]
“I paid them hitters through Cash App”— Block Inc. paid to promote a video for a song called “Cash App” which described paying contract killers through the app. The song’s artist was later arrested for attempted murder.
Cash App was also cited “by far” as the top app used in reported U.S. sex trafficking, according to a leading non-profit organization. Multiple Department of Justice complaints outline how Cash App has been used to facilitate sex trafficking, including sex trafficking of minors.
There is even a gangGang A gang is normally a group or society of associated criminals with a defined leadership and internal organization that identifies with or claims control over a territory or business practice in a community and engages, either individually or collectively, in illegal, and possibly violent, behavior. Online gangs are not limited by territory and may operate side by side with other gangs while engaging in crime online. Some members of criminal gangs are initiated (by going through a process of initiation), or have to prove their loyalty and right to belong by committing certain acts, usually theft or violence, or rituals. Gangs are usually rougher and more visible than scammer cartels, and more often arrested. named after Cash App: In 2021, Baltimore authorities charged members of the “Cash App” gang with distribution of fentanyl in a West Baltimore neighborhood, according to news reports and criminalCriminal A criminal is any person who through a decision or act engages in a crime. This can be complicated, as many people break laws unknowingly, however, in our context, it is a person who makes a decision to engage in unlawful acts or to place themselves with others who do this. A criminal always has the ability to decide not to break the law, or if they initially engage in crime to stop doing it, but instead continues. records.
Beyond facilitating payments for criminal activity, the platform has been overrun with scam accounts and fake users, according to numerous interviews with former employees.
Examples of obvious distortions abound: “Jack Dorsey” has multiple fake accounts, including some that appear aimed at scamming Cash App users. “Elon Musk” and “Donald Trump” have dozens.
To test this, we turned our accounts into “Donald Trump” and “Elon Musk” and were easily able to send and receive money. We ordered a Cash Card under our obviously fake Donald Trump account, checking to see if Cash App’s compliance would take issue—the card promptly arrived in the mail.
Former employees described how Cash App suppressed internal concerns and ignored user pleas for help as criminal activity and fraud ran rampant on its platform. This appeared to be an effort to grow Cash App’s user base by strategically disregarding Anti Money LaunderingMoney laundering Money laundering is the illegal process of concealing the origins of money obtained illegally by passing it through a complex sequence of banking transfers or commercial transactions. Money laundering can be done through various mediums, leveraging a variety of payment vehicles, people and institutions. (AML) rules.
The COVID-19 pandemic and nationwide lockdowns posed an existential threat to Block’s key driver of gross profit at the time, merchant services.
In this environment, amid Cash App’s anti-compliance free-for-all, the app facilitated a massive wave of government COVID-relief payments. CEO Jack Dorsey Tweeted that users could get government payments through Cash App “immediately” with “no bank account needed” due to its frictionless technology.
Within weeks of Cash App accounts receiving their first government payments, states were seeking to claw back suspected fraudulent payments—Washington State wanted more than $200 million back from payment processors while Arizona sought to recover $500 million, former employees told us.
Once again, the signs were hard to miss. Rapper “Nuke Bizzle”, made a popular music video about committing COVID fraud. Several weeks later, he was arrested and eventually convicted for committing COVID fraud. The only payment provider mentioned in the indictment was Cash App, which was used to facilitate the fraudulent payments.
We filed public records requests to learn more about Block’s role in facilitating pandemic relief fraud and received answers from several states.
Massachusetts sought to claw back over 69,000 unemployment payments from Cash App accounts just four months into the pandemic. Suspect transactions at Cash App’s partner bank were disproportionate, exceeding major banks like JP Morgan and Wells Fargo, despite the latter banks having 4x-5x as many deposit accounts.
In Ohio, Cash App’s partner bank had 8x the suspect pandemic-related unemployment payments as the bank that processed the most unemployment claims in the state, even though the latter bank processed 2x the claims as Cash App’s, according to data we obtained via a public records request.
The data shows that compared to its Ohio competitor, Cash App’s partner bank had nearly 10x the number of applicants who applied for benefits through a bank account used by another claimant – a clear red flag of fraud.
Block Inc. had obvious compliance lapses that made fraud easy, such as permitting single accounts to receive unemployment payments on behalf of multiple individuals from various states and ineffective address verification.
In an apparent effort to preserve its growth engine, Cash App ignored internal employee concerns, along with warnings from the Secret Service, the U.S. Department of Labor OIG, FinCEN, and State Regulators which all specifically flagged the issue of multiple COVID relief payments going to the same account as an obvious sign of fraud.
Block reported a pandemic surge in user counts and revenue, ignoring the contribution of widespread fraudulent accounts and payments. The new business provided a sharp one-time increase to Block Inc. stock, which rose 639% in 18 months during the pandemic.
As Block Inc. 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. Other executives, including CFO Amrita Ahuja and the lead manager for Cash App Brian Grassadonia, also dumped millions of dollars in stock.
With its influx of pandemic Cash App users, our research shows Block has quietly fueled its profitability by avoiding a key banking regulation meant to protect merchants. “Interchange fees” are fees charged to merchants for accepting use of various payment cards.
Congress passed a law that legally caps “interchange fees” charged by large banks that have over $10 billion in assets. Despite having $31 billion in assets, Block avoids these regulations by routing payments through a small bank and gouging merchants with elevated fees.
Block Inc. includes only a single vague reference in its filings acknowledging it earns revenue from “interchange fees”. It has never revealed the full economics of this category, yet roughly one-third of Cash App’s revenue came from this opaque source, according to a 2022 Credit Suisse research report.
Competitor PayPal has disclosed it is under investigation by both the SEC and the CFPBCFPB The Consumer Financial Protection Bureau is a United States government agency. The Consumer Financial Protection Bureau (CFPB) is a 21st century agency that helps consumer finance markets work by making rules more effective, by consistently and fairly enforcing those rules, and by empowering consumers to take more control over their economic lives. CFPB LINK over its similar use of a small bank to avoid “interchange fee” caps. A Freedom of Information Act (FOIA) request we filed with the SEC indicates that Block may be part of a similar investigation.
Block Inc. $29 billion deal to acquire ‘buy now pay later’ (BNPL) service Afterpay closed in January 2022. Afterpay has been celebrated by Block as a major financial innovation, allowing users to buy things like a pair of shoes or a t-shirt and pay over time, only incurring massive fees if subsequent payments are late.
Afterpay was designed in a way that avoided responsible lending rules in its native Australia, extending a form of credit to users without income verification or credit checks. The service doesn’t technically charge “interest”, but late fees can reach APR equivalents as high as 289%.
The acquisition is flopping. In 2022, the year Afterpay was acquired, it lost $357 million, accelerating from 2021 losses of $184 million.
Fitch Ratings reported that Afterpay delinquencies through March 2022 had more than doubled to 4.1%, from 1.7% in June 2021 (just prior to the announced acquisition). Total processing volume declined -4.8% from the previous year.
Block Inc. regularly hypes other mundane or predatory sources of revenue as technological breakthroughs. Roughly 31% of Cash App’s revenue comes from “instant deposit” which Block says it pioneered and works as if by “magic”. Every other major competitor we checked provides a similar service at comparable or better rates.
On a purely fundamental basis, even before factoring in the findings of our investigation, we see downside of between 65% to 75% in Block shares. Block reported a 1% year over year revenue decline and a GAAP loss of $540.7 million in 2022. Analysts have future expectations of GAAP unprofitability and the company has warned it may not be profitable.
Despite this, Block Inc. is valued like a profitable growth company at (i) an EV/EBITDA multiple of 60x; (ii) a forward 2023 “adjusted” earnings multiple of 41x; and (iii) a price to tangible book ratio of 13.1x, all wildly out of line with fintech peers.
Despite its current rich multiples, Block is also facing threats from key competitors like Zelle, Venmo/Paypal and fast-growing payment solutions from smartphone powerhouses like Apple and Google. Apple has grown Apple Pay activations from 20% in 2017 to over 70% in 2022 and now leads in digital wallet market share.
In sum, we think Block has misled investors on key metrics, and embraced predatory offerings and compliance worst-practices in order to fuel growth and profit from facilitation of fraud against consumers and the government.
We also believe Jack Dorsey has built an empire—and amassed a $5 billion personal fortune—professing to care deeply about the demographics he is taking advantage of. With Dorsey and top executives already having sold over $1 billion in equity on Block’s meteoric pandemic run higher, they have ensured they will be fine, regardless of the outcome for everyone else.
Read The Full Report Here: https://hindenburgresearch.com/block/
What do you think about this?
Please share your thoughts in a comment below!
-/ 30 /-
Do You Need Support?
Get It Now!
SCARS provides the leading Support & Recovery program for relationship scamRelationship Scam A Relationship Scam is a one-to-one criminal act that involves a trust relationship and uses deception & manipulation to get a victim to give to the criminal something of value, such as money! Click here to learn more: What Is A Relationship Scam? victims – completely FREE!
Our managed peer supportPeer support Peer support occurs when people provide knowledge, experience, emotional, social or practical help to each other. It commonly refers to an initiative consisting of trained supporters and can take a number of forms such as peer mentoring, reflective listening (reflecting content and/or feelings), or in a support group. Peer support is also used to refer to initiatives where colleagues, members of self-help organizations and others meet, in person or online, to give each other connection and support on a reciprocal basis. Peer support is distinct from other forms of social support in that the source of support is a peer, a person who is similar in fundamental ways to the recipient of the support; their relationship is one of equality. A peer is in a position to offer support by virtue of relevant experience: he or she has "been there, done that" and can relate to others who are now in a similar situation. Trained peer support workers such as SCARS Volunteers receive special training and may be required to obtain Continuing Education Units, similar to clinical staff. Some other trained peer support workers may also be law-enforcement personnel and firefighters as well as emergency medical responders. groups allow victims to talk to other survivorsSurvivor A Scam Survivor is a victim who has been able to fully accept the reality of their situation. That they were the victim of a crime and are not to blame. They are working on their emotional recovery and reduction of any trauma either on their own, through a qualified support organization, or through counseling or therapy. And has done their duty and reported the crime to their local police, national police, and on Anyscam.com and recover in the most experienced environment possible, for as long as they need. Recovery takes as long as it takes – we put no limits on our support!
SCARS is the most trusted support & education provider in the world. Our team is certified in trauma-informedTrauma-Informed Trauma-informed care shifts the focus from “What’s wrong with you?” to “What happened to you?” A trauma-informed approach to care acknowledges that health care needs to have a complete picture of a patient’s life situation — past and present — in order to provide effective care services with a healing orientation. Adopting trauma-informed practices can potentially improve patient engagement, treatment adherence, and health outcomes. care, grief counselingCounseling Counseling is the professional guidance of the individual by utilizing psychological methods especially in collecting case history data, using various techniques of the personal interview, and testing interests and aptitudes. A mental health counselor (MHC), or counselor, is a person who works with individuals and groups to promote optimum mental and emotional health. Such persons may help individuals deal with issues associated with addiction and substance abuse; family, parenting, and marital problems; stress management; self-esteem; and aging. They may also work with "Social Workers", "Psychiatrists", and "Psychologists". SCARS does not provide mental health counseling., and so much more!
To apply to join our groups visit support.AgainstScams.org
We also offer separate support groupsSupport Groups In a support group, members provide each other with various types of help, usually nonprofessional and nonmaterial, for a particular shared, usually burdensome, characteristic, such as romance scams. Members with the same issues can come together for sharing coping strategies, to feel more empowered and for a sense of community. The help may take the form of providing and evaluating relevant information, relating personal experiences, listening to and accepting others' experiences, providing sympathetic understanding and establishing social networks. A support group may also work to inform the public or engage in advocacy. They can be supervised or not. SCARS support groups are moderated by the SCARS Team and or volunteers. for family & friends too.
Become a
SCARS STAR™ Member
SCARS offers memberships in our STAR program, which includes many benefits for a very low annual membership fee!
SCARS STAR Membership benefits include:
- FREE Counseling or Therapy Benefit from our partner BetterHelp.com
- Exclusive members-only content & publications
- Discounts on SCARS Self-Help Books Save
- And more!
To learn more about the SCARS STAR Membership visit membership.AgainstScams.org
To become a SCARS STAR Member right now visit join.AgainstScams.org
To Learn More Also Look At Our Article Catalogs
SCARS Printed Books For Every Scam SurvivorSurvivor A Scam Survivor is a victim who has been able to fully accept the reality of their situation. That they were the victim of a crime and are not to blame. They are working on their emotional recovery and reduction of any trauma either on their own, through a qualified support organization, or through counseling or therapy. And has done their duty and reported the crime to their local police, national police, and on Anyscam.com From SCARS Publishing
Visit shop.AgainstScams.org
Each is based on our SCARS Team’s 32 plus years of experience.
SCARS Website Visitors get an Extra 10% Discount
Use Discount Code “romanacescamsnow” at Checkout
SCARS GREEN BOOK
Self-Help Self-Paced Recovery Program Guide
LEARN HOW TO RECOVER ON YOUR OWN
This program is designed to help scam victims struggling to recover on their own and for those who want to understand the overall process. You can be using other resources, such as traumaTrauma Emotional and psychological trauma is the result of extraordinarily stressful events that shatter your sense of security, making you feel helpless in a dangerous world. Psychological trauma can leave you struggling with upsetting emotions, memories, and anxiety that won’t go away. It can also leave you feeling numb, disconnected, and unable to trust other people. Traumatic experiences often involve a threat to life or safety or other emotional shocks, but any situation that leaves you feeling overwhelmed and isolated can result in trauma, even if it doesn’t involve physical harm. It’s not the objective circumstances that determine whether an event is traumatic, but your subjective emotional experience of the event. The more frightened and helpless you feel, the more likely you are to be traumatized. Trauma requires treatment, either through counseling or therapy or through trauma-oriented support programs, such as those offered by SCARS. counseling or therapy, qualified support groups, or completely independent – on your own!
The SCARS Steps program is a complete program and is provided for the purpose of helping scam victims to overcome this experience. Throughout this SCARS Steps Program, we speak about issues and challenges that a victim may have and help guide them through their recovery. But each person is different and it is important to understand your own reasons for being vulnerable to being scammed.
After the trauma of being scammed, you need to take steps to recover and move on. This may be an alternative to counseling in the short term, but we still encourage you to seek out professional help & support. Throughout this SCARS Steps Program, we speak about issues, challenges, defects, or problems that a victim may have in a generalized way.
The SCARS GREEN BOOK will help you recover from your scam offline and it will always be there when you need it!
SCARS SLATE BOOK – Let Us Explain What Happened!
A Guide For Families & Friends Of Scam Victims
HOW TO HELP ROMANCE SCAM VICTIMS FOR FAMILIES & FRIENDS OF SCAM VICTIMS
This SCARS Publishing book represents a complete guide to help the families and friends understand how these scams work and how to help the victim.
The SCARS Slate Book should be purchased by family and friends to better understand what happened to the victim and the traumatic impact on them. But it can also be shared by the victim so that they do not have to explain to family and friends about the scam. This publication is to help others to help Scam Victims to make it through this traumatic experience and recover.
Each person is different and it is important to understand how relationship scamsRelationship Scam A Relationship Scam is a one-to-one criminal act that involves a trust relationship and uses deception & manipulation to get a victim to give to the criminal something of value, such as money! Click here to learn more: What Is A Relationship Scam? work and why people are vulnerable; to being scammed, how they were lured in, then groomed and manipulated. This understanding is essential in helping them through the process of ending the scam and then on to recovery. The SCARS Slate Book will provide the information necessary to help support a victim through this process.
SCARS RED BOOK
Your Personal Scam Evidence & Crime Record Organizer
ORGANIZE YOUR INFORMATION TO MAKE THE REPORTING PROCESS SIMPLE!
Helps you get and stay organized. This publication is to help Scam Victims organize their crime information. Complete this information before reporting to the police then bring this book with you
Before or after reporting to the police the RED BOOK gives you a dedicated tool to record all the essential facts of this crime. The Victim, the Scammers, the Money, and your Police interactions. Everything that really matters can be easily recorded for your immediate use and for the future!
As we have seen, money recovery/repayment programs can become available years after the scam ends and you need to keep all the details of this crime in case it is needed. We have also seen scammers being extradited to the U.S. and other countries, this will help in the event you testify or give statements, Additionally, this helps you have your information ready to qualify for victims’ benefits, compensation, or aid.
The Official SCARS RED BOOK is your way of recording all the important facts of this crime so that you do not lose essential information, Complete the RED BOOK then put it away with the confidence that you will have it if or when it is needed.
100% of all profit goes to help SCARS help more scam victims worldwide.
Your generous purchase allows us to maintain our scam avoidance, support, and recovery services. Please help SCARS and stand proud.
PLEASE SHARE OUR ARTICLES WITH YOUR FRIENDS & FAMILY
HELP OTHERS STAY SAFE ONLINE – YOUR KNOWLEDGE CAN MAKE THE DIFFERENCE!
THE NEXT VICTIM MIGHT BE YOUR OWN FAMILY MEMBER OR BEST FRIEND!
Leave A Comment