March 23 (Reuters) – Hindenburg Research on Thursday disclosed short positions in Block Inc (SQ.N) and alleged that the payments firm led by Jack Dorsey overestimated the number of its users and underestimated its customer acquisition costs.
Block shares fell 20% to $57.85 in premarket trading after the report. If losses continue during the session, shares could post their biggest percentage drop since March 2020.
“Our two-year investigation concluded that Block systematically took advantage of the demographics it claims to help,” the short seller said in a note posted on its website.
Block did not immediately respond to a Reuters request for comment.
The US short-selling firm behind the more than $100 billion market rout in India’s Adani Group said in its report that former Block employees estimated that 40%-75% of the accounts they reviewed were fake, involved fraud, or were additional accounts. linked to one person.
Reuters could not verify the allegations raised in the report.
Hindenburg added that the ban “obfuscates” the number of individuals on the Cash App platform by reporting misleading “active transaction” metrics full of fake and duplicate accounts.
Hinderberg added that co-founders Jack Dorsey and James McKelvey collectively sold more than $1 billion in shares during the pandemic as the company’s stock price soared.
The report added that other executives, including CFO Amrita Ahuja and Cash App lead director Brian Grassadonia, dumped millions of dollars in inventory.
According to Ortex data, about 5.2% of Block’s tradable shares were short as of March 22. The company’s price index was the third most popular company on the StockTwits forum focused on retail investors.
Last month, Block said he was “significantly slowing” the pace of hiring this year to control costs.
Founded in 2017 by Nathan Anderson, Hindenburg is a forensic financial research firm that analyzes equity, credit and derivatives.
The Hindenburg invests its capital and takes short positions against the companies. After finding potential wrongdoing, the company typically publishes a report explaining the issue and bets on the target company, hoping to make a profit.
Short sellers usually sell borrowed securities with the goal of buying them back at a lower price.
Additional reporting by Manya Saini and Akriti Sharma in Bengaluru; Editing by Nivedita Bhattacharjee and Sriraj Kaluvella
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