Cash App Rife With Fraud and Scammers, Bombshell Report Alleges
Crypto News

Cash App Rife With Fraud and Scammers, Bombshell Report Alleges

The Bitcoin-friendly payments app's stock dropped as much as 20% today after a harsh report by activist short seller Hindenburg Research accused it of widespread misdeeds.

Cash App Rife With Fraud and Scammers, Bombshell Report Alleges

Table of Contents

Listen to the CoinMarketRecap podcast on Apple Podcasts, Spotify and Google Podcasts

"I just put some money on his head through a Cash App."
"Cash App" by YPN Dougie and Lil Saucy

A short seller report has accused Jack Dorsey's Cash App payments processor of facilitating fraud on a massive scale while taking a "Wild West" approach to compliance, predatory lending practices and distorting user metrics.

In a March 23 release, Hindenburg Research argued that Bitcoin-friendly Block's "inflated user metrics and 'frictionless' fraud facilitation enabled insiders to cash out over $1 billion."

Core to the allegations is that Block has not only failed to fight fraud, money laundering and the use of its payments tools by criminals and bad actors, it has deliberately encouraged them.

Hindenburg pointed to comments by Block's CEO, Twitter founder Jack Dorsey, who has bragged that there are more than 30 songs about Cash App, saying it showed how much people saw the tool as valuable and useful.

A video compilation showed a large number of songs with lyrics — like those above — praising Cash App as a way to fund crime.

With Dorsey an avowed Bitcoin maximalist, Block was an early supporter of BTC among payments apps, embracing the ability of merchants to accept Bitcoin — and only Bitcoin — payments as early as 2014, and of users to buy, sell and hold BTC in January 2018.

Last October, it added Lightning Network support to make bitcoin purchases far cheaper and faster.

The 'Wild West'

Saying that a two-year investigation that included interviews with dozens of former employees and partners, among other research, Hindenburg said it found that those ex-employees believe 40% to 75% of accounts reviewed were involved in fraud, fake — Hindenburg said it got a Cash App Cash Card debit card in the name "Donald Trump" without any questions — or were part of a large series of accounts connected to one individual. The short seller added:

"The company's 'Wild West' approach to compliance made it easy for bad actors to mass-create accounts for identity fraud and other scams, then extract stolen funds quickly."

It cited a number of statistics it said showed that the rate of fraudulent COVID-19 payment was in some cases several times higher among Cash App clients than from banks several times its size.

Questioning User Numbers

Hindenburg added that Block has been accused by ex-employees of blacklisting single accounts while allowing users to maintain "dozens or hundreds" of active accounts. It said:

"Block obfuscates how many individuals are on the Cash App platform by reporting misleading 'transacting active' metrics filled with fake and duplicate accounts."

Hindenburg called on Block to reveal how individuals actually use Cash App.

The short seller predicted that even ignoring its allegations, Block's stock has a 65% to 70% downside due to weak fundamentals. After a fourth quarter 2022 loss of $114 million, the company admitted that it has a long path to profitability.

Block's stock declined as much as 20% on Thursday, and is down 55% over the past 12 months.

The company angrily refuted Hindenburg's allegations, saying in a statement provided to CoinMarketCap that it intends "to work with the [Securities and Exchange Commission] and explore legal action against Hindenburg Research for the factually inaccurate and misleading report they shared about our Cash App business today." It added:

"Hindenburg is known for these types of attacks, which are designed solely to allow short sellers to profit from a declined stock price. We reviewed the full report in the context of our own data and believe it's designed to deceive and confuse investors."

As a public company, Block said it is "highly regulated" and is "confident in our products, reporting, compliance programs, and controls."

The tactic of short selling has attracted strong criticism from companies that call it a form of market manipulation. Calling short sellers' actions "short and distort" — a mirror of "pump and dump" — opponents have petitioned regulators to ban it.

However, in a February article about Hindenburg's previous target, India's Adani Group, Fortune noted that "proponents also call them a healthy part of a stock market, keeping stock prices in check and preventing them from running too high.

That month, the New York Times noted that supporters of short sellers say… "that activists, by uncovering fraud, do more good than harm… [and provide] a vital service in policing the markets."

0 people liked this article