Shares of financial technology company Block took a hit after short seller Hindenburg accused the company of facilitating fraud.
Hindenburg, known for making attacks on companies to allow short sellers to profit, targeted Block’s cash app business, which helped the company become a Wall Street darling due to its success.
Hindenburg alleges that the company won advantages through flawed and murky means, serving a specific segment of the unbanked population including criminals.
The short seller also criticized the profitability that made cash app more appealing to investors than Venmo, alleging that it fueled that profitability by avoiding key banking regulations meant to protect merchants.
Block intends to work with the SEC and explore legal action against Hindenburg for the factually inaccurate and misleading report they shared.
Founder and CEO Jack Dorsey has often talked about his mission to serve the under and the unbanked, but Hindenburg says the company only served a specific segment of it.
The allegations made by Hindenburg are largely anecdotal, and the street is taking notice of the lack of actual evidence.
Block’s stock was down as much as 20%, but it has come back after the company said it would prove the allegations wrong.