Hindenburg Research is one of the most famous activist short sellers in the United States. Once they find a company they believe is fraudulent, they will take a short position in the company’s stock (where they make money if the share price falls) and then publish a public report on the company hoping to expose the issues they’ve identified. Hindenburg were the first to identify the problems with India’s Adani Group earlier this year and made their name a couple of years ago exposing electric truck company Nikola.
Last week they published their latest short report on Block, formerly Square (NYSE: SQ and ASX: SQ2). Block has a number of business units, amongst them:
Square: the point-of-sale system and white credit card reader
Afterpay: the Buy Now, Pay Later giant
Cash App: a mobile app that allows peer-to-peer payments
Tidal: a music streaming service
Hindenburg made a number of claims about Block but the two allegations that have captured the most attention:
Misleading investors by overstating user counts, with former employees claiming up to 75% of users may be fake or fraudulent
Allowing Cash App to be used for illicit activities and failing to ban fraudsters
Block’s share price fell 22% on the day Hindenburg released their report. But the company has come out swinging, saying they intend to pursue legal action against Hindenburg for the “factually inaccurate and misleading report”.
Watch this space. This story has plenty more to play out.
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