The Square & Cashapp Fraud | Hindenberg Research.

well arcade Fest just bought some more

Square block stock and now all of a

sudden Hindenburg has disclosed a short

position on the 44 billion dollar or

once 44 billion dollar company square

and I say that because in the pre-market

well let's just say square is not very

happy it's actually dragging coinbase

down even more as well coinbase was down

11 in pre-market now it's down about 15

but forget about coinbase Hindenburg

research has disclosed a big fat short

position on square square was down six

percent yesterday makes you wonder who

knew the Hindenburg report was coming

now Square stock is down 19.5 percent

and after Hindenburg research discloses

their short position this comes after

their last mega short on the adani

network which was a massive short

investigating the fraud or potential

fraud of shell companies being used to

massively profit off of adani stock in

India Hindenburg research was also the

company that exposed Nicola for the

fraud that it was rolling their truck

down a hill and and implying the truck

was actually powered by a hydrogen power

uh engine which was all a fraud now

square is apparently being accused of

quote fraud facilitation and Hindenburg

is suggesting that square stock could

fall as much as 65 to 75 percent based

on the findings in their research well

folks make sure you get yourself life

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right block formerly known as square is

a 44 billion dollar market cap company

that claims to have developed

frictionless and magical Finance

technology with a mission to empower the

unbanked and underbanked our two-year

investigation into block has concluded

that block has systematically taken

advantage of demographics it claims to

be helping the magic behind Block's

business is not Innovation but rather

the company's willingness to facilitate

fraud against customers in the

government

uh to avoid regulation and dress up

predatory loans and fees as

revolutionary technology and mislead

investors with inflated statistics our

research involves dozens of interviews

with former employees you have to be

careful with interviews unless they can

provide evidence so we'll take a look at

that as well as litigation records and

foia requests most analysts are excited

about the post-pandemic surge of blocks

cash app that's true during the stemi

days man Square was exploding our

Research indicates however that block

has wildly overstated its genuine user

counts and has understated customer

acquisition costs former employees

estimate that 40 to 75 percent of the

accounts they reviewed were fake

involved in fraud or were additional

accounts tied to single individuals uh

yeah but that's not necessarily wrong I

mean if Square comes out and says hey we

opened a million new accounts

and half of those are people making a

savings account at a stock account

I mean that that is accurate right

that's incumbent upon the investor to

realize the same person can have

multiple accounts that's not necessarily

fraud so I want to see where this fraud

is

core to the issue is that block has

embraced one traditionally very

underbanked population criminals oh okay

let's see when users are caught engaging

in fraud uh they didn't ban a user they

showed how blacklisted accounts were

regularly associated with dozens or

hundreds of active accounts suspected of

fraud a phenomenon of allowing

blacklisted users was so common that

rappers bragged about it in hip-hop

songs

okay Jack Dorsey is publicly talented

how cash app is mentioned in hundreds of

hip-hop songs is evidence of its

mainstream appeal I paid them hitters

through cash app Block paid to promote

the video for a song called Cash app

which describes paying Contract Killers

through the app

I mean some of this is probably uh you

know designed to be hyperbole uh would

be interesting to see if there's actual

evidence of of uh you know uh this and

I'm sure there is there I mean I'm sure

every uh Bank to some extent has

criminal activity that goes on I mean

I'm sure people get zelled for crimes

all the time uh here's the drug money

Zell dinner five thousand dollars yeah

anyway uh let's see here to test this we

turned our accounts into Donald Trump

and Elon Musk and we're easily able to

send and receive money yeah I mean I

don't know why that's necessarily

had uh I I I I I mean is is there

something wrong with that I mean I mean

maybe I suppose if there's a kyc rule

like a know your customer rule that

requires you not have a fake name but I

mean I suppose anybody can make like a

meta mask wallet and and transact but

then again that seems to be it more of

the D5 space right so okay interesting

and those are some thoughts that would

be running through my head

former employees described how cash apps

suppressed internal controls and ignored

user please for help as criminal

activity ran rampant on the platform I

mean it is it is also true that

companies like tech companies don't

really have the incentive to argue or to

start Banning and closing a bunch of

fraudulent accounts or potentially

fraudulent accounts because it does hurt

the user metrics right I mean you saw

the same thing with Twitter with the bot

Army well wait Twitter happened to be

founded by Jack Dorsey who's now running

Square

wait a minute is it possible that fake

accounts propping up user metrics at

Twitter are also happening at Jack

dorsey's other company Square

yeah that's interesting

covet pandemic existential uh uh threat

to merchant services in the environment

uh amid cash apps anti-compliance free

for all the app facilitated a massive

wave of government coveted relief

programs I mean that is true no bank

account needed that's true they let

people deposit your money straight into

this so people can spend it right away

uh Massachusetts sought to claw back

over 69 000 unemployment payments from

cash app just four months into the

pandemic suspecting transactions at Cash

apps uh partner Banks were

disappropriate okay well this is

actually interesting because if you

could make a fake account and then start

claiming potentially stemi checks or

unemployment through casha that creates

a really big problem

uh that's uh that's that's very

interesting that is a fair point the

data shows how I compared to uh its Ohio

competitor cash apps partner bank at

nearly 10x the number of applicants who

applied for benefits yeah so this goes

back to covet fraud I believe that there

was a lot of covert fraud at basically

every level I definitely believe that uh

as block stock soared on the back of its

facility facilitation of fraud Jack

Dorsey collectively sold over one

billion dollars of stock over the

pandemic yikes and other Executives also

dumped Millions all right uh

um

okay so Congress passed laws that

legally capped interchange fees but

block avoided these by routing payments

through smaller Banks I mean frankly

that doesn't sound like fraud that

sounds actually smart I mean to some

extent like if and I get it I think

there's there's a legal great loophole

there that they're jumping through but

Square isn't a bank you know JP Morgan

has a limit on the fees they can assess

you but like smaller Banks don't because

they face less regulation that's why

we're having a banking crisis right now

right and so if you could take uh the

the money uh uh that that people deposit

with you and spread it out to multiple

different small Banks and now it enables

you to charge more fees

I mean that's probably part of the game

I don't know that that's necessarily

fraud I mean it's probably wrong uh like

that's not the intent but I mean even

Sofi who has its own banking licenses

like we now offer two million dollars of

FDIC coverage how are you doing that oh

well we're going to a bunch of small

Banks

exactly

so I mean that's not that's just sort of

the game that gets played that doesn't

seem so terrible I'm looking for like

the Smoking Gun here you know because

usually there's something like really

crazy but so far this doesn't seem very

surprising to me uh and this is I won't

reiterate how I hate Financial stocks in

a recession but anyway competitor PayPal

has disclosed it's under investigation

over its use of small Banks to avoid

interchange fees yeah but that doesn't

mean it's wrong just because you're

under investigation I mean maybe a law

will be passed that changes that right

block

s 29 billion dollar deal to acquire

after pay closed in January

uh after let's see here

after pay has been celebrated as a major

Financial Innovation I mean no I think

it's just a great way to charge people

massive interest allowing users to buy

things like a pair of shoes for or

t-shirts and pay overtime incurring

massive fees of subsequent late payments

are made the big problem with buy now

pay later right now uh is uh

you know the big the big problem with it

this is true well yeah yeah somebody's

saying remember their argument is

whether the short them not whether it's

legal or not I don't think you could say

them taking advantage of a legal

loophole is a reason for shorting right

I don't think you can argue that like

taking advantage of a legal loophole

like you would expect businesses do

everything they can to maximize their

profits that's why legal loopholes often

exist because they Lobby to have those

legal loopholes it's all a broken rigged

system don't get me wrong I'm not

defending the system I think how

complicated things are are complicated

on purpose to make the rich richer and I

think it's disgusting but let me say one

thing for sure you should never use buy

now uh pay later uh in my opinion and

I've said that ironically but honestly I

have said that since 2021 when I first

started covering a firm I'm like let

everybody else use that but you should

not use it and run from it in a

recession I've said that since day one

and I still believe it like you should

not use these Services they they are

very very expensive after pay was

designed as a way to avoid reasonable

lending rules uh such as you know

basically lending without credit checks

or charging higher aprs yeah but again

that's that's not illegal like the fear

about buying out pay later regulation

has been in existence for the past two

or three years we already knew that

there's nothing wrong with that after

paid delinquencies are skyrocketing no

[ __ ] going into a recession they have no

collateral you think about you think a

firm is going to show up at your house

to take the sneakers off your feet

because you bought them with buy now pay

later and now you're not repaying no

what are they gonna do they're gonna

kick you off the platform that's it

that's the most they can do uh that's

that's not a surprise

uh block regularly Hypes mundane

predatory sources of revenue

uh as technological breakthroughs such

as uh 31 of cash apps Revenue comes from

instant deposit which uh block says it

pioneered every other major competitor

we check provides a similar service

dude it's marketing man oh who cares

like that's not fraud that there's

nothing wrong with that I don't know man

hiddenberg this one's pretty weak so far

in a purely fundamental basis even

before factoring in the findings of our

investigation we see a downside of 65 to

75 percent of the shares maybe you do uh

block is valued like a profitable Growth

Company okay so now we're going to talk

about valuation I'll talk valuation I'll

go through the valuation myself in a

moment I'll go through the valuation

nobody gives a crap about price the book

for a tech company dude come on man uh

and selling for a forward adjusted

earnings multiple of 41 we'll look into

that in just a moment we'll look at your

multiples uh block is also facing

threats from competitors like Zell venmo

PayPal no [ __ ] none of this is News man

we think block misled investors on its

key metrics look having fake accounts

that's the biggest thing you got so show

me more about and the CEOs selling

shares well you could say the same thing

about Elon Musk Elon Musk dumped 24

billion dollars on normies myself

included last year okay

so what Jack Dorsey built up a five

billion dollar Fortune good for him man

that's not fraud that's the game that's

what that's what stocks are man

so where is the fraud and then we're

gonna go through the fundamentals so a

few things so let's go through their

evidence rapid adoption will lead to

exponential growth fantastic where's the

evidence of fake accounts that's what I

want to see

block has a fundamental downside oh I'll

go through that myself in a moment

there you have criminals on their

platform dude every bank has criminals

criminals are everywhere everybody's a

criminal to some extent I imagine

everybody breaks the law at some point

and in theory if you've ever rolled a

stop sign in your life you too have

broken the law and after all what is a

criminal well a criminal is somebody who

breaks the law therefore are you not

also a criminal so then it's just

they're very in degrees of criminals uh

signs are hard to miss there is even a

gang named after cash app with members

arrested for fentanyl distribution okay

like

what like whatever I paid them hitters

through cash app okay like this is a

fantastic PR for cash app

this is interesting I want to see the

fraudulent account stuff and look I want

to be clear here I don't own Square I

don't care if the stock goes to zero I

really don't care I'm just trying to

look at this as a reasonable person

all right cash app has claimed to have

80 million annual transacting active

users a highly inflated number given

evidence of massive user duplication

okay

uh cash app

page seven of the SEC filing they say

the company has 80 million annual

tracking actives okay well you have to

see what an active is because if if

you're just gonna say an active like an

active could reasonably be an account

right so that's from their annual report

I'll go look at that in just a second uh

uh let's see here cash apps users many

users have dozens or even hundreds of

accounts screen well I want to see these

screenshots hold on let me go to that

because they didn't convert to a PDF so

let's go here

cash app gang who cares what do we have

here cash app is a sponsor big deal of

course they're a sponsor okay here are

the user metrics growth Matt actives

well you have to look at what the

definition of an activ is and if the

definition of an active is just active

account instead of active people then

it's not necessarily wrong you know uh

okay let's see here some fancy graphs

what is this okay yes so what a bunch of

people like I don't know that there's

necessarily something wrong with having

a bunch of different cash app accounts I

mean there are a lot of Elon musks but

you can name yourself whatever you want

that doesn't necessarily mean they're

fake I mean I can name myself you know

bj69 or or you know 69 for BJ or

whatever on the app if I wanted to I

mean does it have to be your real name I

don't know

and uh look at what is this credit card

sent to Hindenburg whose real name is

not Donald Trump well uh I mean that's

interesting I wonder but then again I'm

pretty sure you could put almost any

name you want on your credit card like

Danny Duncan showed me his credit card

and on his credit card from American

Express his Platinum Card his Platinum

Card says Danny [ __ ] Duncan and I'm

like that's pretty badass they didn't

stop you from putting that name on it

and he's like no they didn't care what

name I put on it

a part of that reason is because you

could put you know whatever business

name or in theory you want so I wonder

if that's just more of a broad business

issue uh or banking issue then then it

is something that's specifically related

to um

uh uh you know

um what's it called cheese Lord Square

uh but anyway what do we have over here

here's a quote for details about a

Consumer Financial Protection Bureau

petition what is this slow walking the

disclosure to invest investors about the

existence of the investigation

I mean really like somebody is supposed

to get like like

urgently respond to a lawsuit from the

cfpb of course everybody's gonna take

that easy the longer you're trying it

out usually the like a you want to be

detailed with your response and and B

like

you got to run a business like your top

priority isn't responding to complaints

that's just part of business though

who's this proceeded to request a

physical card uh entering your name in

the last four of her social okay rather

than requiring all nine digits over

social cash app ran the incomplete

investigation through a third party ID

check company to determine whether the

information belonged to a unique

individual why skip a basic legal

requirement I mean that's fair you know

if it should be the full but how do we

know that you have to

see look at this uh identity

verification see to me that's more of a

question of ideology then like look at

it this way if you're square and you're

like all right the government requires

us to check the IDS of people before we

issue something and you're like well the

government allows us to use a third

party service to do that well then it's

an incumbent upon the third party

service to do a good job let me give you

an example if you want to approve your

an accredited investor and you prove

that to investready.com like if you want

to invest in house hack and they give

you a letter saying you're an accredited

investor and you defrauded them or they

didn't ask you for all the right

information it's not my problem anymore

because I'm relying on invest ready as a

third party to verify that you're an

accredited investor you know that's the

problem with invest ready they're

promising me that your credit right so

like businesses do that they use third

parties I don't know man

okay so they didn't require okay now

they require block recently began

requiring full socials what looks to me

like they're trying to fix the problem

I don't know man I I I like

to me this this seems crazy

I'm working to weed out the 40 to 50

percent of fraudulent activity accounts

I'm working with daily I mean also it's

not uncommon for former employees to

[ __ ] on the company they work for I

don't know man this is not as much of a

smoky gun as I thought it would be uh

you know Hindenburg

I don't know that they really had as

much as they thought they had here this

is their two-year investigation let me

go to the investor relations page

investor relations Square let's look at

the fundamentals because maybe they have

a point about the fundamentals of square

being overvalued maybe they have a point

there uh and I don't invest in square

and I don't short Square so I really

don't care uh but let's look at their

annual uh report anyway and let's see if

Square really is overvalued or you know

a fraud or whatever I mean to me this

I don't know man it's it's not so crazy

uh but you know what is crazy and we're

going to pull up this uh this report

here and I'll go through it with you but

what is crazy is that square is actually

recovering here in the pre-market uh

people are buying the dip on square

right now it's only down 15.8 percent uh

coinbase on the other hand is down 17.18

in pre-market here uh keep in mind if

you want to use this awesome app uh I am

paid to tell you you can get 12 free

Stocks by going to metcaven.com Weeble

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as five minutes all right

so let's look at this this is their last

annual report let's just do the same

thing we did earlier with coinbase let's

go to their cash flow statement first

and and maybe it's overvalued but it's

not a crime to be overvalued right okay

so they lost a lot of money they lost

535 or 553 million dollars in 2022 while

at the same time they managed to pay out

to their employees a billion dollars of

stock based compensation good Lord like

I'm not opposed to stock based

compensation

at all

but like

at least make money right somebody here

says I ran a fake name for the longest

time until they sent me a new card last

year with my real name on it

that sounds like they're trying to get

better sounds good to me all right so

what do we have here net cash provided

an operating activity oh that's good so

we actually made some money from

operations uh but that could be deposits

that could be an increase in deposit so

I'm not sure if that's actually going to

be free cash that is one of the issues

with looking at bank style companies so

then you have payments to redeem

convertibles proceeds from it looks like

they paid off uh some of their uh

what's it called some of their PPP uh

money they paid some of that off paid

off about 480 million dollars of PPP

money you know in 2020 I think people

got mad at people for taking PPP money I

remember that with uh what was that uh

Burger Joint there's something with an S

there's some burger joint everybody got

mad at it it's like nobody knew what was

we were going to experience in 2020. uh

you know what kind of hell we were going

to walk into

but anyway

net cash provided by financing

activities okay so we got some money

from financing over here okay let's look

at their actual numbers here uh so we're

losing money yeah I mean so you can't

really do a multiple evaluation on them

because they are losing money right so

the multiple is really infinite uh that

that that is fair In fairness that's a

very expensive company now they are

still growing transaction based Revenue

unlike uh coinbase they're still growing

revs

so let's calculate this really quick so

if I go 5701 divided by four seven nine

three Shake Shack that was it thank you

so much that's 18.9 percent uh

uh

18.9 percent growth that's actually

still decent in subscription or

transaction based Revenue four five five

two divided by 2709 you're growing here

by 68 that's pretty good as well

Hardware up a little bit Bitcoin Revenue

obviously fall the fell oh that makes

sense transaction Revenue costs are 2719

up 23 percent at least that's better

than coinbase where coinbase had

negative revenue and their transaction

costs were like doubling like their

revenue was half and their transaction

costs were doubling like coinbase is the

real loser here this short report should

be on coinbase

861 divided by four eight three uh

that's a little uh 78 that's also not

that big of a separation from their

revenue growth rate so that's not

terribly unusual their Opex did explode

though

all packs up and this is why their stock

based comp is skyrocketing Opex up 55

yeah I don't know how they they're gonna

go profitable again here uh it's gonna

be a hot minute before they can go

profitable again with this sort of Opex

growth I mean they if they had this Opex

with the same growth as they used to

have uh well they actually are at about

the same level of Revenue as they used

to have the problem really is their Opex

growth so they have to grow faster than

their Opex growth and they're growing

basic I mean their total net revenue is

basically negative uh slightly negative

if you look at just these two segments

here not considering Bitcoin

5701

5701 plus four five five two divided by

about what do we have here two eight uh

six eight plus seven seven five I mean

they still grew by somewhere around 36

percent on their transaction and

subscription revenue and that is

actually where they do have margin so

they just need to grow faster than their

Opex yeah is it expensive

are they likely to grow faster than

their Opex probably not would I invest

in them right now no I think there are

probably a toxic bombshell because you

don't even know how many losses are

going to come out of uh the loans from

after pay uh but but their their

financials are actually not as bad as

some of the other fintech players

they're not good I mean again I don't

want to touch them uh but uh let's see

what do we have in debt over here

so if we look at actual debt customer

payables will go away from that let's

look at settlements accrued expenses

that's 1.5 billion that's 2 billion

right here current that's two and a half

bill

safeguard that doesn't matter uh defer

tax liabilities I'll throw up well those

are non-current so those don't matter as

much

so we're gonna go with about two and a

half billies right here in roughly bills

to pay and they've got cash of four and

a half Billy right here uh that's not to

include their their uh short-term

Investments that puts them at about 5.5

billion free cash not considering

customer funds receivables loans

available for sale those could become

worth a whole lot less because they're

probably dangerous this Good Will is

insane the fact that they put 12 billion

dollars for their brand on their balance

sheet that's nutty huh wait what the

hell look at their Goodwill holy crap

now see that's where you can hit them

with like how do you how do you say that

look at their Goodwill they went from

their brand being worth 500 million to

their brand being worth 12 billion

dollars I mean see that looks insane to

me

that looks cookie Dukey but I mean

they've got cash they could burn they've

got so much cash that they could burn

these negative cash flow I mean they I

mean they actually have positive cash

flow they're not running out of cash

they're not going bankrupt yeah their

EPS might be negative for a while but

they have the capacity to keep burning

cash because they're paying most of the

people in the stock yeah that's dilutive

to shareholders

does it really look like they're a

massive fraud uh because they got some

fake accounts and fake names

not really I think this is somewhat of a

weak report by square but that's my

first take on it I mean maybe it's worth

going even deeper into it but my first

take is not that great