‘We find it very unlikely’

Block (SQ) is still being put in the square box by Hindenburg Research.

Block shares fell another 2% in early trading on Friday, after 15% off on Thursday, as Wall Street continues to sift through a new piece of research on short sellers in Hindenburg. Digital payment outfit is still one top five trending codes on the Yahoo Finance platform.

The Hindenburg study alleges fraud against a company founded and led by billionaire Jack Dorsey.

The study alleges Block is “willing to facilitate fraud against consumers and governments, evade regulation, turn predatory loans and fees into revolutionary technology, and mislead investors with inflated figures.”

Block responded, but it wasn’t as hard as investors wanted it to be – which left questions about the company’s business spinning.

“We plan to cooperate with the SEC and explore legal action against Hindenburg Research for the inaccurate and misleading report they shared about our Cash App business today. Hindenburg is known for these types of attacks, designed solely to allow short sellers to profit from a falling stock price.We have reviewed the full report in the context of our own data. me and believe it is designed to mislead and confuse investors We are a heavily regulated public company with regular disclosures and confidence in our products, reported its compliance Block said in a statement.

Dr. Greg Werner poses with a Square (now Block) credit card reader at his New York office on January 5, 2015. (AP Photo/Seth Wenig, File)

Dr. Greg Werner poses with a Square (now Block) credit card reader at his New York office on January 5, 2015. (AP Photo/Seth Wenig, File)

Dorsey did not return Yahoo Finance’s request for comment. Hindenburg Research did not respond to repeated attempts to discuss its new research.

Here’s the vibe on Wall Street:

Truist analyst Andrew Jeffrey: “We have known Block’s management team for many years and believe in how [company] discuss, manage and disclose details of its Cash App business. While we believe Cash App generates some fraud, like any other P2P payment app, we find it highly unlikely that one of the most sophisticated FinTechs in the US is systematic fraud. We also emphasize that the majority of Cash App’s gross profit is generated by Cash Card (5x gross profit), which requires a legitimate bank account. While anyone can order a card, it still needs to be authenticated like any bank card — including verification of the SSN and/or driver’s license. To our knowledge, it is not possible to gain access to the full functionality of the Cash App using a fake SSN. To the extent Cash App fraud exists, we think the validation requirements are sufficient to ensure that core profits are not severely impacted. In addition to the fraudulent claims, the negation echoes an ingenious argument that Durbin created small banks that would be subject to close scrutiny. Any changes to the Durbin exemption could adversely affect the Cash App’s exchange revenue. That said, we don’t see policymakers getting rid of Durbin because it would disadvantage thousands of small companies. [financial institutions] and the communities they serve. Despite the foregoing, we recognize that increased fraud surveillance at any new banking platform could lead to a review of business practices and possibly slow the pace of fraud. user growth. We think this is clearly reflected in yesterday’s 15% sell-off (SPX +30 basis points) and SQ’s estimated ~20x EBITDA multiple by 2024.”

Citi analyst Peter Christiansen: “We have read through reports of active short sellers alleging inconsistent compliance standards as it relates to Cash App account setup and ongoing fraud monitoring, among While the Block, like any other financial institution, cannot control what people do with their money, the report raises two important lines of questions: (i) Yes (or whether or not Cash App/KYC control fraud according to both regulatory and industry standards; and (ii) if not, Interactive Cash App’s growth, revenue retention and user record is the result of the perception of the majority of users that the platform has inadequate KYC/fraud controls (i.e. lax fraud/KYC controls considered as a feature of the product) ) We had hoped Block’s response/rejection would be more detailed and believed that ‘exploring legal action’ would likely not be enough to address investors’ concerns.”

Keybanc analyst Josh Beck: “In summary, we see no basis for disparaging claims and instead view the report as observations from a relatively new outsider who is unfamiliar with the principles and information. FinTech industry standard operating ratio or broader regulatory structure 1) Key metrics associated with Cash Applications are reasonably determined to be comparable to the broader tech universe. is 51 million people will launch in 2022, defined as an active transaction that has had at least one financial transaction using any product or service in the Cash App, in line with the peer-to-peer and other third-party data sources (which tend to only track app-based activity, not pure financial activity like card transactions). exchange-based revenue model, a standard model in the financial services and FinTech industry. users faster access to funds, an intrinsic money movement throughout the industry. 3) Strong block compliance processes and consistent with industry standards. As a financial services provider, Block is subject to a variety of laws and regulations including but not limited to payment regulation (e.g. registered with Treasury FinCen), CFPB, AML (aggregation) policies, procedures, reports and controls adhered to by the director of the Block (head office) and a clearly accepted usage policy. We believe that Block is fully compliant with applicable laws and regulations, and prevents the maximum amount of fraud that can occur in a business that is inherently subject to, though unavoidable, any circumstances. In any case of fraud, it is simply the reality of being a financial services provider as highlighted by the famous Nilson Report issue, which cites $32.3 billion in card fraud. between issuers, sellers and buyers in 2021.”

Yahoo Finance Ines Ferre contributed to this story.

Brian Sozzi is the Executive Editor of Yahoo Finance. Follow Sozzi on Twitter @BrianSozzi and more LinkedIn. Advice on the banking crisis? Email [email protected]

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