According to the Hindenburg study, Jack Dorsey’s fintech startup Block committed $1 billion in financial fraud by overstating the number of users while understating client acquisition expenditures.
The study also accused the company’s Indian-origin CFO, Amrita Ahuja, of liquidating millions of dollars in equities during the pandemic as the firm’s price rose due to its facilitation of fraud.
According to the report, “As Block’s 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.”
According to her LinkedIn page, Amrita Ahuja is the Block COO and CFO. In 2001, she worked as an investment banker for Morgan Stanley, a financial services company.
Ahuja has a Bachelor of Science in Computer Science from the University of Massachusetts, Amherst, and an MBA from the Wharton School at the University of Pennsylvania. The Wall Street Journal (WSJ) said that her parents were Indian immigrants who owned a daycare centre in a Cleveland suburb.
She was intrigued by Block (formerly Square), the paper claims, due to its emphasis on helping small company owners like her parents. She had held positions at the Walt Disney Company, the former Fox division of News Corp., and Activision Blizzard Inc. before joining Block.
While working at Fox, she helped launch the Hulu streaming service. She assisted Activision Blizzard, a video game company that creates “Call of Duty,” “Candy Crush,” and “World of Warcraft,” to transition from a business model based on seasonal in-store sales to one based on an online, always-on, multiplayer experience.
Hindenburg in its report said, “Our 2-year investigation has concluded that Block has systematically taken advantage of the demographics it claims to be helping.” According to the research company, Block’s Cash App prospered by catering to “unbanked” users.
Former Block employees were quoted in the report by the US short-seller, who claimed to blame for the over $100 billion market loss in Adani Group, as saying that they thought 40% to 75% of the accounts they reviewed were fake, bogus, or extra accounts linked to a single person.
The report also claimed that the business adopted a different strategy and chose to target criminals, a relatively “under-banked” demographic.
The research added, “Core to the issue is that Block has embraced one traditionally very under-banked 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 scams, then extract stolen funds quickly.”
The investigation claims that rather than banning users who were detected committing fraud, Block blacklisted them. The study claims that these blocked accounts were frequently linked to hundreds of live accounts that were thought to be fraudulent, citing former Block workers.
Hindenburg alleges that Block circumvented a fundamental banking restriction meant to protect retailers in order to covertly increase its revenue with a spike of pandemic Cash App customers. “Interchange fees” are assessed to businesses for taking certain credit and debit cards.
The US Congress passed legislation that officially caps the “interchange fees” that large banks with assets over $10 billion may impose. According to the study, Block circumvented these regulations despite having $31 billion in assets by routeing payments through a small bank and charging merchants exorbitant fees.
The report added, “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 shows that the artists are not generally rapping about Cash App’s smooth user interface many describe using it to scam, traffic drugs or even pay for murder.”
On Thursday, Dorsey’s net worth fell by $526 million, the most it had dropped in a single day since May. After an 11% decline, his current net worth is $4.4 billion, according to the Bloomberg Billionaires Index.
Bloomberg claims that Dorsey has most of his own wealth invested in Block. His share in the company is estimated to be worth $3 billion by the Bloomberg wealth index, while his stake in Elon Musk’s Twitter is worth $388 million.
