Infamous short seller and “forensic financial” researcher Hindenburg Research probably strikes fear in the heart of any company it targets – along with its investors and management. They have a great deal of impact on the market when they release one of their research reports – perhaps most notably for EV company Nikola and India’s Adani Group. Yesterday, Hindenburg released its latest report on the electronic consumer payment company Block (formerly Square), which also owns Cash App. Many accusations come down to alleged fraudulent representations related to its social impacts and associated financials, which Hindenburg wraps in the cloth of Block’s claimed “mission to empower the ‘unbanked’ and the ‘underbanked'”.
Specifically, Hindenburg accuses Block of:
- “… embrac[ing] one traditionally very ‘underbanked’ 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…
- Cash App was also cited ‘by far’ as the top app used in reported U.S. sex trafficking, according to a leading non-profit organization. Multiple Department of Justice complaints outline how Cash App has been used to facilitate sex trafficking, including sex trafficking of minors…
- Former employees described how Cash App suppressed internal concerns and ignored user pleas for help as criminal activity and fraud ran rampant on its platform. This appeared to be an effort to grow Cash App’s user base by strategically disregarding Anti Money Laundering (AML) rules…
- … the app facilitated a massive wave of [suspected fraudulent] government COVID-relief payments…
- In sum, we think Block has misled investors on key metrics, and embraced predatory offerings and compliance worst-practices in order to fuel growth and profit from facilitation of fraud against consumers and the government.”
These are harsh accusations and if the trend with Hindenburg holds true, Block’s stock price and management are in for a bumpy ride. This is another indication that how a company determines ESG materiality of its operations, responds to those findings and communicates about its social impact can be more financially material than expected.
PracticalESG.com members have access to resources to help companies increase internal fraud awareness and implement controls to help prevent situations leading to lawsuits against the company and individuals. These resources include podcasts on Fraud Detection in ESG and Selecting an ESG Advisor, guidebooks on making green claims and board Audit Committee roles, checklists on ESG data validation, ESG messaging, selecting ESG Auditors and Advisors and more.
