Block survived a dump-and-dump attempt on it
CashApp is still around over a year after Hindenburg Research went on its tirade
How much money did Hindenburg Research make from their dump-and-dump1 attempt? Before releasing a tendentious report on Block that seemed designed to exploit the social isolation of many investors, they obviously took short positions in the shares of the company behind Square, CashApp, Tidal, and some projects involving Bitcoin.
While failing to find problems that were fundamental, Hindenburg’s report kicked up a lot of dust around issues of fraud and money laundering that do not appear to be markedly worse at Block than they are at competitors offering similar online financial services. Where CashApp is somewhat different is that it has growing cachet in some younger, hipper types of markets. While conventional business thinking might call that good marketing, Hindenburg took a look at the race or musical genre of people talking about the app and tried to make that a problem.
The only real problem here is that many of the investors who read this disingenuous report were able to be persuaded by the racist fear-mongering. While historic inequities could explain the disparity wherein more white Americans own stock than Black Americans, the ownership of stocks as fractional shares (an offering on CashApp) is greater among Black investors.2 But instead of seeing what CashApp is doing as offering new ways for traditionally disadvantaged groups to move or invest a little bit of cash, Hindenburg tries to de-legitimize everything they are doing by making negative inferences connected to cultural stereotypes. There would be a great deal of money in arbitraging3 the blinkered stupidity of the many current investors who were convinced by the report and its hype to sell last year.
The value of Block’s shares (SQ) did take a dive after the release of the report by Hindenburg on March 23, 2023, falling from $72.65 on the previous day to $61.88. But since then the shares had recovered to above $80 last month before falling recently to $65.56. Not exactly the catastrophic result that the short sellers seemed to imply—and now that Block has largely weathered this one, there need to be questions asked now about how investors can be protected from these short selling raids.
[Disclosure: I buy and sell stocks and other investments.]
While a traditional ‘pump-and-dump’ scheme requires an attempt to temporarily inflate the value of assets before unloading them, a dump-and-dump scheme involves taking a short position (profiting from loss in value) on something and then releasing flimsy arguments that temporarily deflate the value of the asset
A 2022 report from Schwab said that 5% of Black Americans were invested in fractional shares, compared to 3% of white Americans, however 58% of Black Americans and 63% of white Americans were invested in stocks
One type of such arbitrage would have been buying Block shares right after the report came out and then waiting for the hype around the report to cool off