Jack Dorsey-led fintech company Block faces federal investigation

According to NBC's report, federal prosecutors are conducting a deep investigation into the internal practices of the financial technology company Block, founded by Twitter co-founder Jack Dorsey, and have discussed with a former employee the longstanding compliance issues within the company's two main divisions, Square and Cash App.

Block Previously Targeted by Hindenburg Short Report

According to a study by the Consumer Financial Protection Bureau last year, mobile payment apps like Cash App, PayPal, and Venmo are very popular, with over three-quarters of U.S. adults using them. Regulators say these services, known as person-to-person payment platforms, pose risks to users and the financial system. For example, in recent years, law enforcement officials have cited instances of criminals using payment apps to evade the law, such as laundering stolen COVID-19 relief funds in 2020.

In March of last year, the well-known short-selling firm Hindenburg Research released a lengthy report after two years of investigation, alleging that the magic behind Block's business was not revolutionary innovation, but rather the company allowing numerous fake accounts and turning a blind eye to fraudulent activities, evading regulations, and more.

The Hindenburg Research report pointed out that, according to estimates from former Block employees, 40%-75% of the accounts they reviewed were fake and involved fraud, but Block chose to overlook this issue as creating a new account with a new phone or email was easily done. Hindenburg accused Block of disregarding anti-money laundering (AML) rules, using these fake accounts to inflate their user numbers to attract more investors.

Block Targeted by Hindenburg Short Report, Allegations of Fraudulent Practices

NBC Reports Block Under Federal Scrutiny

According to NBC, former employees of Block provided documents to the Southern District of New York prosecutor, indicating that information collected from Square and Cash App customers was insufficient to assess customer risk, and Square processed thousands of transactions involving countries and regions subject to economic sanctions such as Cuba, Iran, Russia, and Venezuela.

The former employee also stated that most transactions discussed with the prosecutors, including credit card transactions, USD transfers, and Bitcoin, were not reported to the government as required. When Block received alerts of misconduct, the company did not correct its operational procedures.

However, Block's statement to NBC insisted that the company did not intentionally violate international sanctions. They mentioned that their legal team, external legal advisors, and consultants are providing recommendations "on the issue and appropriate remedial actions," and the company has conducted regular sanction screenings on all its merchants.

Board Members and CEO Depart, Jack Dorsey Takes Lead at Block

In recent months, Block announced the unexpected departures of two board members, including former U.S. Treasury Secretary Lawrence Summers, who had been on Block's board since 2011 but resigned in February, and Sharon Rothstein, who had been a director since 2022, announced in April that she would not continue in that role.

In October of last year, CEO Alyssa Henry, who had been with Block for nine years, left for other opportunities, prompting founder Jack Dorsey to return and undertake significant cost-cutting measures. In the February shareholder report, Dorsey mentioned that he had done a lot to reduce costs before and is now focusing on growth.

Subsequently, Block announced the development of three-nanometer chips for Bitcoin mining and will offer merchants using its Square and Cash App services the ability to convert a portion of their daily sales into Bitcoin.