Cash Appa person-to-person payment platform owned by parent company Block (formerly Square), has been accused of allowing criminal activity to take place on its platform, according to a report by activist short seller Hindenburg Research.
What is a short seller
But before we go any further, let’s see what a short seller is.
A short seller (short seller, in Spanish) is an investor who bets against a company, that is, he expects the company’s share price to decrease rather than increase. To do this, the short seller sells shares that he doesn’t actually own (called “borrowed shares”) and then waits for the share price to drop to buy them at a lower price and return them to the original owner. If the stock price falls, the short seller makes a profit by buying the borrowed shares at a lower price than he sold them. However, if the stock price increases instead of decreasing, the short seller could face significant losses as he would have to buy the shares at a higher price to return them to the original owner. Short sellers often look for companies in financial or other trouble, and may disclose negative information about the company in an effort to drive down its share price and make a profit.
What is Cash App accused of?
The firm alleges that Cash App has been used for illegal transactions, including paying hitmen, and that the platform facilitated mass account creation for identity fraud and other scams. It also accuses Block (the matrix) of not having complied with the regulations for the prevention of money laundering.
The report of Hindenburg Research comes after a two-year investigation. The main criticism focused on Cash App, a peer-to-peer payment platform that allows users to send money to friends and family.
The report says that the platform was quickly adopted by malicious actors as it was easy to remain anonymous (using fake identities) and, in the event their accounts were closed, they could quickly return to the platform.
The report also mentions that Cash App has been mentioned in hundreds of hip-hop songs, with artists claiming to use it for everything from drug dealing and prostitution to paying hitmen.
In response, Block stated that he intends to work with the SEC and explore legal action against Hindenburg Research over what he calls an inaccurate and misleading report designed to mislead and confuse investors.
How this affected Block (Square) and Jack Dorsey
Block’s shares were down about 15% as of 2:30 p.m. ET. Hindenburg Research is an activist short seller, but its track record is admired among investors.
Jack Dorsey is the CEO of Square, Inc., the parent company of Cash App which later changed its name to Block. Cash App is one of Square’s premier mobile payment applications, allowing users to send and receive money to each other quickly and easily. As CEO of Square, Dorsey has been a champion of fintech and has worked to expand the company’s presence in the mobile payments market. Although the Hindenburg Research report on Cash App and Block does not directly mention Dorsey, his leadership at Square and his position as the company’s CEO make him a key figure in the management and operation of Cash App.
This report is a reminder that trust is a critical factor in any financial transaction. Consumers expect their transactions to be secure and legitimate, especially in an increasingly digital environment. Businesses that do not comply with anti-money laundering and other regulations may lose the trust of their customers and ultimately their business. Trust is the foundation of any successful relationship between companies and customers.
