What happened
A controversial research report about a prominent fintech was the torpedo that sank a clutch of the sector's stocks on Thursday. Two notable victims of this were insurance specialist Lemonade (LMND 2.16%) and next-generation lender Upstart Holdings (UPST -0.58%). The former's stock closed the day nearly 2% lower, while the latter suffered a nearly 4% decline. By contrast, the S&P 500 index inched up by 0.3%.
So what
The peer blasted with that report was Block (SQ -0.59%), which has drifted into the sights of a short-seller called Hindenburg Research.
Notorious in certain circles, Hindenburg is known particularly for its scathing take-downs of stocks it feels are significantly overvalued.
Hindenburg took a big torch to Block's business. Among other alleged transgressions, it accused the popular fintech of inflating the user count of its popular Cash App payment platform and understating customer acquisition costs. Hindenburg went as far as to write in its report about "willingness to facilitate fraud against consumers and the government."
In fact, the word "fraud" appears 63 times in the body of the report.
Now what
Lemonade is not mentioned in the document and Upstart makes only a single appearance, as an example. Yet since the two companies orbit in the same fintech galaxy as Block, investors are clearly worried that they might employ one or more of the methods Hindenburg is alleging its target employs. So far, there's no evidence to suggest this, nevertheless investors are wary.
The Hindenburg report clearly spooked the market; hopefully the effect won't last and the better fintech titles will recover.
