What happened
The stock market was largely in positive territory on Thursday morning, but fintech innovator Block (SQ -0.49%) was a big exception. As of 10 a.m. ET, Block's shares had lost a staggering 20% of their value, heading sharply in the opposite direction of the overall financial sector.
So what
The reason for the massive plunge in Block is a report by notable short-seller Hindenburg Research announcing its short position in the fintech stock.
In a nutshell, Hindenburg accuses Block of inflating Cash App's user base and having very little in the way of fraud controls. Over a two-year investigation, Hindenburg claims it has taken advantage of the unbanked people it claims to be helping by facilitating illegal activity.
Hindenburg makes several other allegations as well, such as Block taking advantage of stimulus check payments during the early days of the COVID-19 pandemic, getting around regulatory caps to increase its revenue from interchange fees, and disregarding anti-money laundering rules.
The report was summarized by claiming that Block has misled investors, embraced predatory behavior, and has knowingly profited from fraud against both consumers and the U.S. government.
Now what
When a short-seller report like this is released, it should certainly be taken seriously, but it's also important to take a step back and understand it is just one side of the story. We have yet to hear Block's response, plus keep in mind that Cash App is just one side of Block's highly successful business. I'll certainly be keeping an eye on this story as it unfolds, but I also have absolutely no intention of selling my shares based solely on this report.
