Another Week... Another Multi-Billion Dollar Fraud (Allegedly)

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Edited By: Andrew Gonzales

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2022 was the worst year for financial fraud ever, we are now three months into 2023 and it’s shaping up to be another record breaker.

Jack Dorsey is best known as the founder of Twitter, a company that only made a profit in two years after he had already sold most of his shares but it still made him over a three billion dollars after including the money he made from his remaining shares that got sold to Musk.

Dorsey also made two point nine million dollars by selling an NFT of his first ever tweet to some idiot on the internet that thought it was a good investment, the same NFT was put up for auction early last year hoping to fetch forty-eight million dollars under the hammer… The auction ended with a top bid of just two hundred and eighty dollars a loss of 99.9903%

Other investors in Dorsey’s world changing technologies might not be so lucky. Last week Hindenburg research a firm that makes money by shorting companies that are operating fraudulently and then releasing reports outlining their fraud took aim at Dorsey and his latest businesses.

Fresh of the back of their scathing Adani report that led to the companies of Asia’s richest man losing over a hundred billion dollars in market cap, Hindenburg released a similar report about Dorsey’s new company Block.

Block Inc. formerly Square is a financial technology conglomerate that owns companies you will all be familiar with.

Square, is an easy to use payment processing and banking software for small businesses, Tidal is a music streaming service founded by rapper Jay-Z which was acquired by Block in 2021 for three hundred million dollars and Cash App, a mobile payment service that lets users send and receive money, trade stocks, and invest into crypto without actually being part of the banking system at all.

Block Inc. had a market cap of over one hundred billion dollars in 2021 so it was actually worth significantly more than twitter even at the inflated price that Musk paid for it. Today it is worth 60% less than it’s all time peak and Hindenburg is arguing that it will fall by a further 65% to 100% because of the flaws in the business.

The Hindenburg report is seventeen thousand words long, I have gone ahead and read so you don’t have to, but it outlines how Block has been systematically defrauding their customers, investors and authorities.

Investors love user growth because having more people using a networked platform exponentially makes that platform more valuable. Since Cash Apps main feature is being able to send money directly to other cash app users it’s value as a service increases with every new user it has.

Other network companies like Facebook, Uber and Twitter spend a lot of resources acquiring new users because Uber is only valuable as a rider if you can find a driver and visa versa, Facebook is only valuable if people can connect with their friends on it, and twitter is only valuable because some billionaire edge lord got forced to buy it by the SEC.

Ok that last one is a little bit different, but investors in companies building a network are willing to pay a lot of money for user growth even if it means the business is not profitable while they are doing it.

Cash App claimed to it’s investors that it had eighty million active users that had made at least one transaction in the last year, that would be roughly 25% of all people in the markets they operated in.

Fintech companies make much more money from each individual user than a social media sites so eighty million users and growing is a very impressive result for a service that has been around for less than ten years.

Hindenburg’s however had heard rumours from company employees that people were making duplicate accounts for themselves with some individuals having hundreds of cash app accounts.

Former employees estimated that 40%-75% of accounts were fake, involved in fraud, or were additional accounts tied to a single actual individual.

Security and verification is often one of the first casualties when building an app around ease of use but this becomes a real problem for Cash App, it’s investors and the authorities when Hindenburg revealed WHY people were making so many accounts, and here’s a hint, it wasn’t to inflate user metrics for investors.

So it’s time to learn How Money Works