Block Inc. Exposed: How the Financial Technology Company Exploited the Vulnerable and Enabled Criminal Activity on Its Cash App Platform.

Block Inc., previously known as Square Inc., is a financial technology company that claims to have developed a "frictionless" and "magical" technology to empower the "unbanked" and "underbanked" populations. However, a two-year investigation revealed that the company systematically took advantage of the demographics it claimed to be helping.

The investigation by Hindenburg Research involved interviews with former employees, partners, and industry experts, extensive review of regulatory and litigation records, and FOIA and public records requests.

The findings showed that Block had facilitated fraud against consumers and the government, avoided regulation, dressed up predatory loans and fees as revolutionary technology, and misled investors with inflated metrics.

History of Block Inc.

Square Inc. was founded in 2009 by Jack Dorsey, the co-founder and CEO of Twitter, and Jim McKelvey, a glassblower and entrepreneur. The company's first product was a small, square-shaped device that attached to a mobile phone and allowed businesses to accept credit card payments.

Square quickly gained popularity and raised significant venture capital funding. In 2013, the company went public with a valuation of $2.9 billion. Over time, Square expanded its offerings to include other financial services, such as loans and banking services, and changed its name to Block Inc. in December 2021.

The company's growth has not been without controversy. In 2014, Square was sued by a group of merchants who alleged that the company had misrepresented its fees and violated antitrust laws. The lawsuit was settled for $2.2 million.

In recent years, Block has faced increasing scrutiny over its handling of fraud and illegal activity on its platform, particularly the Cash App. The company has been criticized for its lax approach to user verification, which has allowed scammers and other bad actors to use the app to commit fraud and other crimes.

In 2020, as the COVID-19 pandemic led to a surge in government relief payments, Cash App was used to facilitate a wave of fraudulent claims. This led to widespread criticism and calls for greater regulation of the company's activities.

Block Inc. Criticism

Despite these challenges, Block has continued to grow and expand its offerings. In 2021, the company acquired Afterpay, an Australian "buy now, pay later" provider, for $29 billion, signaling its ambitions to become a major player in the global financial services industry.

Block has embraced the criminal population and allowed bad actors to mass-create accounts for identity fraud and other scams. Even when users were caught engaging in fraud or other prohibited activity, Block blacklisted the account without banning the user, and this allowed blacklisted users to continue to use the platform. The Cash App platform was cited "by far" as the top app used in reported U.S. sex trafficking and was even used to facilitate sex trafficking of minors.

Furthermore, the platform has been overrun with scam accounts and fake users, according to numerous interviews with former employees. The investigation found that the company had wildly overstated its genuine user counts and 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.

Block has also obfuscated how many individuals are on the Cash App platform by reporting misleading "transacting active" metrics filled with fake and duplicate accounts. The investigation suggests that Block should clarify to investors an estimate on how many unique people actually use Cash App.

The investigation also revealed that the company suppressed internal concerns and ignored user pleas for help as criminal activity and fraud ran rampant on its platform. 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.

Cash App facilitated a massive wave of government COVID-relief payments, and within weeks of Cash App accounts receiving their first government payments, states were seeking to claw back suspected fraudulent payments. The investigation found that Block played a role in facilitating pandemic relief fraud, and states like Massachusetts sought to claw back over 69,000 unemployment payments from Cash App accounts just four months into the pandemic.

Block Inc.'s Cash App platform has been exposed to have facilitated fraud, sex trafficking, and pandemic relief fraud, among other illicit activities. The company's claims to empower the "unbanked" and the "underbanked" have been refuted by evidence that suggests that the company has systematically taken advantage of these demographics. The investigation calls on the company to clarify its user counts and customer acquisition costs and improve its compliance with Anti Money Laundering (AML) rules.