Block, Inc. SQ fell over 16% in two sessions after Hindenburg released a short report on the Jack Dorsey-run payment processing company, and one high-profile CEO isn't too happy.
What Happened: Sharing a Twitter thread from Ark analyst Maximilian Friedrich on Saturday, Ark Invest founder Cathie Wood said Hindenburg seems to believe that investors and analysts with deep expertise in fintech won’t read its reports.
The short seller appears to think that speculators and traders will support its short positions by selling without reading or understanding the reports, she added.
“Wildly misleading,” Wood said.
In his tweet, Friedrich noted that while Hindenburg claimed that Cash App was the only electronic P2P payment processor mentioned in a COVID-19 fraud indictment, the research firm did not say that the defrauded funds had come via Bank of America Corp. BAC, which which had "sent the criminal $1.26 million in PUA [Pandemic Unemployment Assistance] benefits."
The vast majority of the funds obtained via BofA were cashed out using ATMs, bank branches and BofA credit cards. Money transfers or funds transfer services including Cash App accounted for only 7% of the total or about 12% of the cashed-out funds, Freidrich added.
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While Cash App, like many financial services companies, was likely used for fraud during the COVID pandemic, its spending limits may have prevented "the criminal" from cashing out even more of the funds, Friedrich said.
The analyst noted that companies have a risk engine, which they continuously perfect and tune up or down. “Some fintech co's might have temporarily tuned them down to provide a lifeline to many struggling individuals and businesses ignored by banks during COVID,” he added.
Ark Backs Block To Hilt: Ark lapped up Block shares amid its slump following the short report's publication. After a sale of about 26,000 Block shares on Jan. 30, Ark did not transact in the stock until March 13 when the banking crisis escalated.
The firm has been a buyer of Block shares since then — it holds the stock in three of its ETFs - Ark Innovation ETF ARKK, Ark Next Generation Internet ETF ARKW and Ark Fintech ETF ARKF
After the release of the short report, Ark bought a total of 636,543 shares in two sessions. On Friday alone, it bought 263,562 shares valued at roughly $16 million.
Block closed Friday's session down 1.94% at $60.68.
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