Business Headlines: Hindenburg Targets Twitter Founder

[00:00:05] By now, all of you would have heard about the Hindenburg Group. I mean come on, these guys who call themselves shareholder activists and a forensic research outfit are responsible for exposing Asia's richest man, Gautam Adani.

[00:00:20] We all know how the Adani group has crumbled under the allegations of the Hindenburg report and how they were forced to change their business strategy entirely. As in, they are now rejecting and repaying back their former best friend, Debt, and only raising money via equity.

[00:00:38] It was completely the opposite till a couple of months ago. You could say that the Hindenburg Group has profited big time from the misery of other companies. Of course, whether they are justified in doing so is a matter of debate. You will find arguments supporting both sides.

[00:00:53] But stay tuned for today's video because I am going to tell you about the Hindenburg Group's latest target, what they have alleged this time around and which high-profile billionaire was accused. And guys, if you enjoyed such videos, please be sure to hit that like and subscribe button

[00:01:08] for more such financial content. After teasing viewers for hours with a tweet saying that there is a new big report which will be published soon, the Hindenburg Group finally released its new allegations on Thursday, 23rd March against Jack Dorsy's company who was the co-founder of Twitter.

[00:01:27] Now, just to be clear, they haven't made any allegations against Twitter and as we all know, Twitter has a new owner in Elon Musk. So let's leave Twitter out of this. But just for your knowledge, Jack Dorsy still holds a 2.4% stake in the micro-blogging platform.

[00:01:44] The Hindenburg Group came out with another scathing report against a financial services and mobile payments platform co-owned by Jack Dorsy. It's called Block Incorporated. The report, they say, was released after a thorough two-year investigation into the affairs

[00:02:00] of Block and involved dozens of interviews with former employees, partners, industry experts and they even claimed to have extensively reviewed public records. Basically, the exact same thing they did and even the same two-year time period they claimed for the allegations made against the Adani Group.

[00:02:19] And if you go through the report, they use the same language also. So let's find out exactly what Block does and what fraud they have committed according to the Hindenburg report. Jack Dorsy and his partner founded a company by the name of Square in 2009.

[00:02:36] In December of 2021, they renamed it to Block Incorporated to reflect its new corporate identity as it looked to expand beyond the payments business into new technologies like blockchain. Kind of what Mark Zuckerberg did when he rebranded Facebook into Metta to reflect his company's new foreign to the Mettaverse.

[00:02:55] But little did these tech billionaires know that once interest rates began rising to tame inflation, the hype created around these new and emerging technologies would quickly die down. Both have lost billions taking a gamble on this hype. But I digress.

[00:03:14] Block Incorporated, yes, Block Inc. was always at the forefront of anything new and revolutionary that came into the payments business. When they began, they came out with a sleek small white credit card reader which could be plugged into your smartphone's headphone jack.

[00:03:32] In 2013, they launched their flagship app called Cash App, which allowed users to send and receive money via the peer-to-peer model. In 2014, when this P2P model became very popular, they began offering short term loans and received a percentage of every transaction till the loan was paid off.

[00:03:52] In 2017, they introduced a prepaid debit card called the Cash Card so users could make transactions outside the Cash App. In 2018, when Bitcoin became very popular, the app allowed users to move funds into Bitcoin. In 2019, when apps like Robinhood became very popular, they began offering free stock

[00:04:14] trading services also. They acquired few big companies along the way, including a $29 billion acquisition of Buy Now Pay Later App After Pay in 2022. So you can see Jack Dossy, who was actually known as one of the smartest men in the

[00:04:32] world and was even considered a bit of an eccentric and reclusive billionaire, was always ahead of the game in terms of developing his business. And he's no ordinary billionaire either. His personal fortune peaked at a staggering $15 billion in October of 2021 according to Forbes.

[00:04:52] Now, let's see what the Hindenburg Group alleges against him. Outright fraud they say. Block Incorporated has two main businesses. Their merchant service business where they do credit card processing and offer more services like that.

[00:05:08] And their Cash App, a payments app which is the focus of the Hindenburg report. The Cash App claims to have developed a frictionless and magical technology. And its mission is to serve the unbanked and underbanked sections of society.

[00:05:25] Basically, the app allows users to send and receive money without having a bank account and they don't even have a strict verification process. So transactions are not captured by the system. This app became wildly popular in the pandemic.

[00:05:42] And because of it, its stock price, I'm talking about the stock price of Block, surged 639% in 18 months during that time. Jack Dossy and his partner sold more than $1 billion worth of shares at that inflated valuation. But the Hindenburg report says that Block Incorporated got these valuations by

[00:06:03] misleading investors and publishing false information. They claim Block has wildly overstated its genuine user account and understated customer acquisition cost. They even said that former employees of the company estimated that 40-75% of accounts they reviewed were fake, involved in fraud and there were multiple

[00:06:23] accounts tied to a single indivision. If you recall, one of the biggest objections Elon Musk had when he bought Twitter was that of fake accounts or bots. In fact, one top security expert even claimed that 8 out of 10 accounts on Twitter were fake.

[00:06:40] So Jack Dossy is no stranger to such allegations and security controls on his platform always seem to be in the gray area. But in a payments app, the problem of fake and multiple user accounts had massive consequences. Let me explain.

[00:06:57] See, during the pandemic when US was handing out massive stimulus checks to all its citizens, Cash App was one such platform they could receive payments on. The Hindenburg group alleges that because of Cash App's anti-compliance free for all verification system, it facilitated a massive wave of

[00:07:18] fraudulent COVID relief payments in which multiple payments were received by one user. Because of its frictionless technology, payments were received immediately and without a bank account. The US government lost billions of dollars as a result. And once banks got to know about the scam, they even demanded their

[00:07:39] money back from Cash App. And mind you, these were big amounts. The same method was even used to fraudulently claim unemployment benefits from the government. A famous rapper even made a popular music video about committing COVID fraud. He was later arrested and convicted.

[00:07:59] And not surprisingly, Cash App was used to facilitate those fraudulent payments. And this is just one part of the story. As I mentioned earlier, Bloch's claim to fame is inclusiveness. It says it serves the unbanked and underbanked sections of society.

[00:08:20] But the Hindenburg report says its obvious compliance lapses and ineffective address verification serves only one section of unbanked society. Criminals. Criminals have rampantly used the app without any consequences to send and receive money for a variety of crimes, including drug drilling, sex trafficking, and even murder for hire.

[00:08:43] Multiple rappers have referenced Cash App in their songs. A review of those songs show that artists of those songs are not rapping about Cash App's smooth user interface. But describe using it to scam traffic drugs and even pay for murder.

[00:08:59] In fact, creating an account and getting a debit or credit card is so easy that the Hindenburg team even made fake accounts using the names of Donald Trump, Elon Musk, and Jack Dossy. And to their surprise were easily able to send and receive money

[00:09:14] and order Cash Cards, which arrived promptly in the mail. The Hindenburg report goes on to say the only magic which is behind Bloch Incorporated's business has not been disruptive in innovation, but the company's willingness to facilitate fraud against consumers, the government, and mislead investors with inflated metrics.

[00:09:34] The report also goes on to state that Bloch Incorporated has lied about its low acquisition costs and the number of active users it has on the platform. It used these false numbers to justify its sky-high valuations and launch new products in the market.

[00:09:50] Its so-called technological breakthroughs were nothing more than mundane innovations and all its fintech peers provide similar services. After exposing the company, the Hindenburg group says that they hold short positions in Bloch Incorporated and purely on a fundamental basis as well. Before factoring in the findings of the investigation,

[00:10:12] they see a downside in the stock between 65 and 75%. Again, very similar observations they had regarding the Adani Group as well. Because of the allegation, shares of Bloch Incorporated were down 20% in Thursday's trade and Jack Dossy's personal net worth also plummeted by more than half a

[00:10:32] billion dollars in a single day. Bloch Incorporated said it'll take legal action against the Hindenburg group. Another interesting twist in this story is the involvement of an Indian-origin lady by the name of Amrita Awuja. She is the chief operating officer and CFO

[00:10:48] of Bloch Incorporated and is said to be a member of the inner circle of Jack Dossy. She joined the company in 2018 and is a daughter of Indian immigrants to the US. She also profited big time from the quick rise

[00:11:02] of Bloch during the pandemic and is said to have sold millions of dollars worth of stock when its price was at an all-time high. So this was the story of the latest Hindenburg report and Jack Dossy led Bloch Incorporated. If these allegations are proof true,

[00:11:18] it only goes to show how when companies grow very quickly, greed and overambitiousness take over and morals and ethics take a backseat. Some promoters feel they constantly need to continue on that upward path and feel they're invincible. Examples of Sam Bankman fried

[00:11:36] and even Gautam Adani come to mind and now maybe we can add even Jack Dossy to that list. But perhaps in a comical coincidence of sorts, it was Jack Dossy's very own creation, Twitter, which broke the news of his very own possible downfall. Thank you.