Published - March 24, 2023 @ 3:58 PM (EET)
After Hindenburg Research disclosed a short position in Block Inc. (NYSE:SQ), betting against its share price, and published a critical report on the fintech group run by former Twitter CEO Jack Dorsey, its stock tumbled 14.8% on Thursday and was down another 4% in Friday's premarket.
Alleging that Block allowed criminal activity to operate with lax controls and "highly" inflates Cash App's transacting user base, Hindenburg described the company's internal systems as a 'Wild West' approach to compliance.
Hindenburg, whose high-profile attack on Adani Group at one point wiped more than $150 billion off the Indian conglomerate's market value, claimed that Block didn't rein in improper activity.
However, Block, the mobile payments platform as well as point-of-sale system Square and "buy now, pay later" service Afterpay, said the report was inaccurate and would explore legal action against the short seller.
WHY IT MATTERS
Thursday's stock market reaction indicates caution from investors, but Wall Street has predominantly remained upbeat even though some cracks in the consensus are showing.
KeyBanc analyst Josh Beck and his team, in a note on Thursday, wrote,
"We see no merit to the disparaging claims and rather view the report as observations from a relatively novice industry outsider who is not familiar with standard operating practices and principles within the FinTech industry or the broader regulatory construct."
Meanwhile, fund managers, for their part, may see the big dip, with Block losing almost one-fifth of its market value at one point in Thursday trading, as an opportunity.
Cathie Wood snapped up more shares of Block Inc. as the turmoil engulfed the company.
The daily trading report from Wood's company, ARK Investment Management, revealed that three of its exchange-traded funds bought approximately 338,000 Block shares in the session, bringing the total purchases to about $21 million based on the company's closing price.
All three ARK funds finished lower on Thursday, including ARK Innovation ETF (ARKK), ARK Next Generation Internet ETF (ARKW), and the ARK Fintech Innovation ETF (ARKF).
