• Hindenburg Research exposes a short position in Block Inc.
• Block is looking into taking legal action against the short seller.
• Wall Street has a consensus overweight rating on Block shares.

Shares of Block Inc are facing a 15% decline on Thursday after Hindenburg Research revealed it has taken a short position in the financial technology company.

Hindenburg’s reason for short selling Block

Hindenburg has highlighted the large number of fake or duplicate accounts it has found at the popular Cash App platform.

Worse still, their research conducted over two years suggests that many of these accounts are linked to criminal activities, including sex trafficking. The report states:

Block has misled investors on key metrics and embraced predatory offerings and compliance worst-practices to fuel growth and profit from facilitation of fraud against consumers and government.

Back in February, Block reported that its monthly active users had grown 16% year-on-year to 51 million in December. Its shares are slightly in the red for the year after today’s trading.

Block to take legal action against Hindenburg

Hindenburg also criticised the fact that top executives, including CEO Jack Dorsey, have sold more than $1.0 billion of the company’s shares to benefit from the pandemic-driven rally.

In response, on Thursday Block Inc restated that it is a highly regulated public company and announced its intention to take legal action against the short seller.

We intend to work with SEC and explore legal action against Hindenburg for the factually inaccurate and misleading report they shared about our Cash App business today.

Wall Street appears to disagree with Hindenburg’s assessment. Its consensus overweight rating on “SQ” is coupled with an average price target of $98 – up 60% from here.