TheChek News Flow

VIENNA (Reuters) - The European Central Bank is pressing Austria's Raiffeisen Bank International to unwind its highly profitable business in Russia, five people with knowledge of the matter told Reuters.

The pressure comes after a top U.S. sanctions official raised concerns about Raiffeisen's business in Russia on a visit to Vienna last month, said another person familiar with the matter, asking not to be named due to its sensitivity.

The push from Washington and the ECB is upping the stakes for Austria and its second-biggest bank, which plays a key role in the Russian economy but also an increasingly contested one as Moscow's year-long war in Ukraine drags on. Many Western companies, including French bank Societe Generale, have already left Russia.

While the ECB is not asking Raiffeisen to leave the country immediately, it wants a plan of action for unwinding the business, two of the people said. One person said such a plan could include the sale or closure of its Russian bank.

"We have been asking banks to keep closely monitoring the business in Russia, and ideally, reduce it and wind it down as much as possible," a spokesperson for the ECB said, adding it had been doing the same with all institutions concerned since Moscow launched its invasion of Ukraine.

Raiffeisen, however, does not intend to present such a plan yet, the people said, and some Austrian government officials see the moves as unwarranted foreign meddling.

A Raiffeisen spokesperson said that it was examining options for its Russia business "including a carefully managed exit" and that it was "expediting" its assessment, adding that it had also reduced lending in the country.

The Austrian lender is now the most important Western bank in Russia, offering a payments lifeline and accounting for roughly one quarter of euro transfers to the country, although other banks, such as Italy's UniCredit, are still present.

ECB officials are reluctant to pressure Raiffeisen into an immediate sale, fearing the financial hit it could trigger, one person said, after a week of global banking turmoil.

A spokesperson for Austria's finance ministry said that while there could be no return to the status quo in relations with Russia, "most" international companies, including banks remained there.

"There is substantial trade going on between Russia and the rest of the world in commodities like grain, fertilisers, oil, gas, nickel and other metals, which...require payments," said the spokesperson.

HIGH STAKES

In January, the U.S. sanctions authority launched an inquiry into Raiffeisen over its business related to Russia.

Two people with direct knowledge of the matter told Reuters that the probe concerned potential breaches of Western sanctions. Raiffeisen said the inquiry was of a general nature.

The inquiry, which has strained relations between Vienna and Washington, could prove perilous for Austria, which had modelled itself as a bridge between east and west, turning Vienna into a magnet for Russian money.

James O'Brien, a senior sanctions official with the U.S. Department of State, spelt out American concerns over Raiffeisen and its business with Russia during discussions in Vienna in February, one of the people said.

"Ambassador O'Brien and Austrians discussed our close cooperation on sanctions in response to Russia's illegal further invasion of Ukraine," a State Department spokesperson said when asked about the visit.

The Raiffeisen spokesperson said that the bank was in the "early stages" of collecting information to respond to the inquiry letter from the U.S. Treasury Department's Office of Foreign Assets Control (OFAC).

During Austrian President Alexander Van der Bellen's visit to Kyiv last month, Ukrainian President Volodymyr Zelenskiy criticised Austrian businesses still operating in Russia, singling out Raiffeisen, for supporting Moscow.

The bank has also been sharply criticised by investors after participating in a Russian scheme to grant loan payment holidays to troops fighting in Ukraine.

Although the stakes are high, some Austrian officials hope they can hold out long enough for a negotiated resolution to the war, allowing for a resumption of normal business with Russia, three of the people familiar with the matter said.

Austria's foreign minister Alexander Schallenberg has said that while it is "legitimate" for U.S. authorities to approach Raiffeisen, Austria had primary responsibility for enforcing sanctions.

U.S. authorities can go as far as preventing a bank from processing dollar transactions, a step that would deal a serious blow to Raiffeisen and that euro zone regulators fear could destabilise the bank.

Latvia's ABLV Bank quickly unravelled after being placed under U.S. sanctions in 2018 due to concerns about illicit activity connected in large part to Russia.

Some Austrian lawmakers are also critical of the government's stance.

"Supervisory authorities must examine the risks from Raiffeisen's activity and that from day one of the war," Stephanie Krisper, a lawmaker from the liberal Neos opposition party told Reuters last week.

"For many years, connections to Moscow permeated our political system - now, the economic and political dependence on Russia has finally become visible."

Person believed to be Do Kwon, creator of failed TerraUSD stablecoin, is detained

A person who officials believe to be Do Kwon, creator of the failed TerraUSD stablecoin, has been arrested in Montenegro after months in hiding, the interior minister of the Balkan country said Thursday.

Montenegro Interior Minister Filip Adzic said on Twitter that the suspect was detained in the airport of the country’s capital of Podgorica with false documents, and that the local authorities were awaiting official confirmation of his identity.

Mr. Adzic and representatives of Mr. Kwon’s company, Terraform Labs Pte. Ltd., didn’t immediately respond to requests for comment. An official from the National Police Agency in South Korea—where Mr. Kwon is from—said the agency believed the detained person was Mr. Kwon but was waiting on fingerprint information to confirm, the country’s semiofficial Yonhap News Agency reported.

TerraUSD, a so-called algorithmic stablecoin that sought to maintain a price of $1, lost its dollar peg in May of last year, setting off a chain reaction that wiped out some $40 billion in value from the digital-currency markets. The crash hurt thousands of investors worldwide, including some who lost their life savings.

Authorities in the U.S. and beyond have stepped up the pressure on the crypto industry after a series of recent blowups that hurt investors in the digital currency markets. Federal prosecutors in New York have charged Sam Bankman-Fried, the founder of the failed FTX crypto exchange, with fraud in connection with FTX’s implosion. Mr. Bankman-Fried has pleaded not guilty and the case is set to go to trial in October. International law-enforcement agencies have also repeatedly busted operations connected to crypto crime.

If detained man is confirmed to be Mr. Kwon, the arrest would mark the end of a monthslong manhunt that spanned Asia and Europe. During that time, the once-outspoken booster of TerraUSD occasionally surfaced on social media to promote a new cryptocurrency project and to defend himself against accusations of fraud.

Just one year ago, Mr. Kwon was a high-profile crypto entrepreneur backed by some of the industry’s biggest investors and trading firms. The Stanford University graduate spoke at digital-currency conferences and had numerous fans dubbed “Lunatics,” after TerraUSD’s sister cryptocurrency, Luna.

Before the collapse, he often boasted online about TerraUSD’s stability and derided critics who questioned the underlying financial mechanism that kept it pegged to the dollar. Investors both large and small flocked to TerraUSD because of a project called Anchor Protocol that allowed them to earn up to 20% annual yields by parking it in the stablecoin.

The collapse of TerraUSD shredded his reputation and triggered a number of investigations and lawsuits around the world.

South Korean authorities issued a warrant for Mr. Kwon’s arrest in September and obtained a so-called red notice for him from global policing body Interpol, effectively putting law-enforcement agencies worldwide on the lookout for him. The Wall Street Journal reported last week that the U.S. Justice Department was investigating the collapse of TerraUSD and had questioned former Terraform Labs team members.

The Securities and Exchange Commission sued Mr. Kwon and the company for alleged securities fraud last month in connection with the TerraUSD collapse. A lawyer for Mr. Kwon and Terraform has said in court that they would seek to dismiss the SEC’s lawsuit. Mr. Kwon has previously denied committing fraud. In an interview with the Journal last year, he said that he believed in TerraUSD and personally lost money when it collapsed. “There is a difference between failing and running a fraud,” he said then.

Police in Singapore have also said they are investigating Terraform Labs, where the company is based. Mr. Kwon was living in Singapore until he disappeared from public view six months ago. According to South Korean prosecutors, he left Singapore in September, traveling to Dubai and then to Serbia. Montenegro neighbors Serbia.

Mr. Kwon has denied being on the run but declined to disclose his whereabouts, saying he was worried about his security amid threats from disgruntled investors. Officials from South Korean law enforcement visited Serbia earlier this year to seek the Balkan country’s cooperation.

The SEC’s lawsuit accused Mr. Kwon and his company of misleading investors about the risks of TerraUSD and wrongly claiming that Terraform Labs’ blockchain technology was used to process transactions on Chai, a South Korean payment app, when in fact Chai used more traditional payment technology. The SEC also said Mr. Kwon and Terraform Labs had transferred a huge amount of bitcoin to an unnamed Swiss bank and converted it to cash. Over $100 million in fiat currency was withdrawn from that Swiss bank since June 2022, the SEC said.

Mr. Kwon has yet to respond to the SEC’s lawsuit in detail. In a Feb. 1 tweet, before the SEC lawsuit, he wrote: “I’ve stolen no money and never had ‘secret cashouts.’”

Financial regulators, which have the power to impose monetary penalties, have sought to curb the activities of crypto companies, with the U.S. moving more aggressively than many other countries. On Wednesday, the biggest U.S. crypto exchange, Coinbase Global Inc., said it had received a notice from the SEC that the agency is planning to bring an enforcement action against it. Coinbase expressed disappointment that it failed to reach an agreement with the SEC over legally registering its business.

Also on Wednesday, the SEC agreed to a settlement with actress Lindsay Lohan and boxer Jake Paul over accusations that they had promoted cryptocurrencies without disclosing that they were paid to do so. Ms. Lohan and Mr. Paul didn’t admit or deny wrongdoing.

The ADL says bomb threats, physical attacks on Jews and white supremacist propaganda increased

There were 3,697 antisemitic incidents in the U.S. last year, the most since the Anti-Defamation League started keeping records in 1979.

Antisemitic incidents rose 36% in 2022 from the previous year, according to data from the ADL, a Jewish advocacy group that examines antisemitism in the U.S. On average, there were 10 incidents a day in 2022, according to the data.

Antisemitic incidents have been increasing, according to the ADL. In 2021, there were 2,717 occurrences, then the highest figure on record, the group said.

“We’re deeply disturbed by this dramatic and completely unacceptable surge in antisemitic incidents,” said Jonathan Greenblatt, chief executive of the ADL. “This data confirms what Jewish communities across the country have felt and seen firsthand and corresponds with the rise in antisemitic attitudes.”

The ADL said it counts both criminal and noncriminal events of harassment, vandalism and assault where victims are targeted due to their Jewish identity as antisemitic incidents. The majority of the incidents are reported to the ADL directly by Jewish victims, the group said. ADL researchers also monitor media reports and other online sites for credible reports of antisemitic incidents, the group said.

There were 2,298 incidents of harassment in 2022, an increase of 29% from the previous year, according to the ADL. There were 1,288 incidents of vandalism, a 51% jump, and 111 incidents of assault, a 26% increase.

White supremacist groups were more active last year, according to the ADL. Instances of antisemitic propaganda distributed by white supremacist groups doubled last year, the organization found.

The ADL didn’t identify a single factor or ideology fueling the increase in antisemitic incidents, the group said. But more bomb threats toward Jewish institutions, white supremacist propaganda activity and attacks on Orthodox Jews were all contributing factors, the group said.

Hate crimes have been on the rise. The FBI reported there were 9,065 hate crimes in 2021, a 12% increase from the previous year. There were 817 incidents of anti-Jewish hate crimes in 2021, up 20% from the previous year, according to the FBI.

There were 1,107 anti-Black hate crimes in 2021, an increase of 27% from the previous year, according to the FBI data. Anti-Asian hate crimes more than doubled, to 746. Hate crimes targeting gay men rose 41% to 984.

The FBI defines hate crimes as those motivated by prejudice based on race, gender and gender identity, religion, disability, sexual orientation or ethnicity.

The Biden administration has denounced the rise in antisemitic attacks and threats across the U.S.

“I just want to make a few things clear: The Holocaust happened. Hitler was a demonic figure,” the president said in a tweet in December. “And instead of giving it a platform, our political leaders should be calling out and rejecting antisemitism wherever it hides. Silence is complicity.”

Oleg Deripaska broke promises in Moscow land dispute, court told

Lawyers claim Russian tycoon ‘deliberately’ breached legal undertakings

Russian metals tycoon Oleg Deripaska “deliberately” breached legal undertakings and should be found in contempt of court, London’s High Court was told on Thursday.

Lawyers for British-based Vladimir Chernukhin, the husband of a Conservative party donor and former deputy finance minister under Vladimir Putin, claimed Deripaska had breached a promise to Chernukhin in 2018 to preserve shares in a legal dispute over land in Moscow.

They asked the High Court to find Deripaska in contempt of court, which is punishable by a prison sentence of up to two years or a fine.

Deripaska, who founded metals group En+ and is the subject of US and UK sanctions because of his purported close links to the Kremlin, denies breaching the undertakings and is defending the case.

The High Court heard that in 2018 Chernukhin, whose wife Lubov is a Tory party donor, had sought legal undertakings from Deripaska over a parcel of En+ shares to give him assurance that the metals tycoon had sufficient assets in the UK to pay a potential $95mn legal award from the Moscow land court case. The $95mn award has since been paid in full.

Chernukhin sought the undertakings after the US government hit Deripaska and En+ with sanctions. This caused a drop in the value of En+ and prompted fears that the metals tycoon would move his assets to Russia out of reach of the English courts, the High Court heard on Thursday.

Jonathan Crow KC, acting for Chernukhin, told the High Court that “there was a considerable level of animosity” between his client and Deripaska. Crow claimed there had been concerns in 2018 that Deripaska would transfer his assets back to Russia as he enjoyed “status in the Russian Federation which would make enforcement [of the legal award ] against him difficult or impossible”.

The oligarch is one of the few prominent members of the Russian elite to have spoken out against Vladimir Putin’s invasion of Ukraine, though his criticism has been guarded and has not criticised the Russian president directly.

Earlier this month, Deripaska warned an audience that Russia could run out of money by 2024 if it did not find new investment to replace the western companies forced out of the country by sanctions.

But Deripaska’s criticism has earned him a reprimand from the Kremlin and weakened his position in the elite, according to people familiar with the matter. Earlier this year, a powerful school run by a close associate of Putin seized a $1bn Black Sea hotel complex and marina from Deripaska after he lost a court battle last year.

However, the High Court heard that months after the undertakings were given by Deripaska, En+ was relocated from Jersey to Moscow as part of an action plan drawn up by its British chair Lord Barker, who resigned from the company in March last year, to get US sanctions lifted on En+. Under the plan, Deripaska also resigned as a director and sold down his controlling stake.

Deripaska testified in his defence this week by video link from Moscow and denied that he had breached the undertakings. The metals tycoon said that after he resigned as a director of En+ in May 2018, he had “no relation to the business of that company” and “trusted the management and Lord Barker” to form a plan to rescue En+. He agreed there had been “a massive decline” in his wealth owing to the US sanctions.

In cross-examination, Deripaska repeatedly denied claims that he was “not telling the truth” about his knowledge of preparations of the relocation of En+ to Russia.

On Thursday, Thomas Grant KC, representing Deripaska, told the High Court that his client had treated the legal undertakings “with respect and care”.

In his written arguments, Grant claimed that Deripaska did not commit the alleged breaches of the undertakings. “Strictly in the alternative, and if he did commit a breach, Mr Deripaska had no awareness of that. He certainly did not intend to commit a breach of the undertakings,” Grant said.

Grant alleged that Chernukhin “knew of the proposal for EN+ to redomicile from Jersey to Russia” and argued that every step of the En+ transfer had been “heavily publicised”.

The judge is set to rule on the committal application in the coming weeks.

Hindenburg Research shorts Jack Dorsey’s payments group Block

Shares tumble after accusations of overstating user counts and facilitating fraud

Hindenburg Research, the short seller that recently targeted India’s Adani Group, has accused payments group Block of artificially inflating its user numbers and facilitating fraudulent transactions.

In a statement on Thursday, Hindenburg said it had been investigating Block, which is led by Twitter co-founder Jack Dorsey, for two years and had taken a short position in the shares.

It said the series of accusations were based on “dozens of interviews with former employees, partners, and industry experts, extensive review of regulatory and litigation records, and FOIA and public records requests”.

Block’s two primary businesses are its Square payments services for merchants and its Cash App mobile payments product, which competes with rivals such as PayPal’s Venmo and Zelle. Hindenburg alleged that Block “obfuscates” the actual number of people on its CashApp platform by reporting “misleading... metrics filled with fake and duplicate accounts”.

Block said it would work with the Securities and Exchange Commission to explore legal action against Hindenburg “for the factually inaccurate and misleading report” about its Cash App business.

“We have reviewed the full report in the context of our own data and believe it’s designed to deceive and confuse investors,” the company said in a statement.

Block’s shares were down 14 per cent on Thursday afternoon. As of Wednesday’s closing price, the company had a market capitalisation of nearly $44bn.

New York-based Hindenburg first came to prominence in 2020 when it claimed that truck start-up Nikola’s business was a fraud. Earlier this year, it accused Indian billionaire Gautam Adani, at the time the third richest person in the world, of “pulling the largest con in corporate history”. The report helped wipe about $100bn off his empire’s market value. Adani has denied the allegations.

Hindenburg on Thursday alleged that Block had overstated its genuine user counts while also understating the amount it costs them to attract new customers.

Hindenburg cited “former employees” as estimating that 40 to 75 per cent of accounts they reviewed were fake, involved in fraud or were users holding multiple accounts.

Hindenburg said that in investigating the matter, it had opened several accounts under fake names including “Donald Trump” and “Elon Musk”.

The short seller also claimed that what was portrayed as Block’s “wild west” approach had led it to become a popular service for criminals to process transactions.

The report alleged that Block has no obvious advantage over competitors such as PayPal or Zelle.

Hindenburg cited the inclusion of Cash App in hip-hop songs where rappers brag about using it for criminal activities.

“A review of those songs shows that the artists are not generally rapping about Cash App’s smooth user interface,” Hindenburg stated, adding that many describe using it “to scam” or for other illicit activity.

Coping with rule books seems hard for the disrupters

It has hardly been a banner couple fortnights for traditional US banking. But life looks no easier for businesses tipped to disrupt the financial services industry by intention rather than by accident.

Brian Armstrong, the outspoken founder and chief executive of Coinbase, on Wednesday said the listed crypto exchange is the subject of a Securities and Exchange Commission investigation. Coinbase has held itself up as a beacon of respectability in crypto, pointing to its public listing and the accompanying rules and scrutiny that invites.

At the same time, Jack Dorsey’s Block finds itself in the crosshairs of another method of accountability. The short-selling firm, Hindenburg Research, has accused Block of exaggerating user metrics and the marketing costs of its CashApp money transfer unit. Hindenburg added that a core customer included criminals using CashApp for wrongdoing. Block has denied wrongdoing.

Coinbase must first cope with the crypto winter. Declining prices of digital currencies led to plummeting trading volumes on the exchange’s platform in 2022. Commensurately, the company’s transaction revenue fell by two-thirds last year, relative to 2021. Its stock price has dropped 80 per cent from its peak.

Block’s market capitalisation has dropped by about the same amount from its own high. It earns revenue from fees paid on CashApp transfers, and also its buy-now-pay-later business, Afterpay. It acquired this as well from fees on customer bitcoin transactions. Both Block and Coinbase are unprofitable on a net basis because of heavy spending on overhead, technology and marketing.

Coinbase faces a novel and genuinely interesting question: do its lending offerings constitute securities? Block may well offer a better customer experience than a traditional bank but its compliance is now under the spotlight. At this time of economic turmoil, coping with rule books seems to be particularly hard for financial services companies with newfangled business models.

Full Report ---> Link : http://bit.ly/3TL9DmQ

• Block Inc., formerly known as Square Inc., is a $44 billion market cap company that claims to have developed a “frictionless” and “magical” financial technology with a mission to empower the “unbanked” and the “underbanked”.
• Our 2-year investigation has concluded that Block has systematically taken advantage of the demographics it claims to be helping. The “magic” behind Block’s business has not been disruptive innovation, but rather the company’s willingness to facilitate fraud against consumers and the government, avoid regulation, dress up predatory loans and fees as revolutionary technology, and mislead investors with inflated metrics.
• Our research involved dozens of interviews with former employees, partners, and industry experts, extensive review of regulatory and litigation records, and FOIA and public records requests.
• Most analysts are excited about the post-pandemic surge of Block’s Cash App platform, with expectations that its 51 million monthly transacting active users and low customer acquisition costs will drive high margin growth and serve as a future platform to offer new products.
• Our research indicates, however, that Block has wildly overstated its genuine user counts and has understated its customer acquisition costs. Former employees estimated that 40%-75% of accounts they reviewed were fake, involved in fraud, or were additional accounts tied to a single individual.
• Core to the issue is that Block has embraced one traditionally very “underbanked” segment of the population: criminals. The company’s “Wild West” approach to compliance made it easy for bad actors to mass-create accounts for identity fraud and other scams, then extract stolen funds quickly.
• Even when users were caught engaging in fraud or other prohibited activity, Block blacklisted the account without banning the user. A former customer service rep shared screenshots showing how blacklisted accounts were regularly associated with dozens or hundreds of other active accounts suspected of fraud. This phenomenon of allowing blacklisted users was so common that rappers bragged about it in hip hop songs.
• Block obfuscates how many individuals are on the Cash App platform by reporting misleading “transacting active” metrics filled with fake and duplicate accounts. Block can and should clarify to investors an estimate on how many unique people actually use Cash App.
• CEO Jack Dorsey has publicly touted how Cash App is mentioned in hundreds of hip hop songs as evidence of its mainstream appeal. A review of those songs show that the artists are not generally rapping about Cash App’s smooth user interface—many describe using it to scam, traffic drugs or even pay for murder. [See our compilation video on this here]
• “I paid them hitters through Cash App”— Block paid to promote a video for a song called “Cash App” which described paying contract killers through the app. The song’s artist was later arrested for attempted murder.
• Cash App was also cited “by far” as the top app used in reported U.S. sex trafficking, according to a leading non-profit organization. Multiple Department of Justice complaints outline how Cash App has been used to facilitate sex trafficking, including sex trafficking of minors.
• There is even a gang named after Cash App: In 2021, Baltimore authorities charged members of the “Cash App” gang with distribution of fentanyl in a West Baltimore neighborhood, according to news reports and criminal records.
• Beyond facilitating payments for criminal activity, the platform has been overrun with scam accounts and fake users, according to numerous interviews with former employees.
• Examples of obvious distortions abound: “Jack Dorsey” has multiple fake accounts, including some that appear aimed at scamming Cash App users. “Elon Musk” and “Donald Trump” have dozens.
• To test this, we turned our accounts into “Donald Trump” and “Elon Musk” and were easily able to send and receive money. We ordered a Cash Card under our obviously fake Donald Trump account, checking to see if Cash App’s compliance would take issue—the card promptly arrived in the mail.
• Former employees described how Cash App suppressed internal concerns and ignored user pleas for help as criminal activity and fraud ran rampant on its platform. This appeared to be an effort to grow Cash App’s user base by strategically disregarding Anti Money Laundering (AML) rules.
• The COVID-19 pandemic and nationwide lockdowns posed an existential threat to Block’s key driver of gross profit at the time, merchant services.
• In this environment, amid Cash App’s anti-compliance free-for-all, the app facilitated a massive wave of government COVID-relief payments. CEO Jack Dorsey Tweeted that users could get government payments through Cash App “immediately” with “no bank account needed” due to its frictionless technology.
• Within weeks of Cash App accounts receiving their first government payments, states were seeking to claw back suspected fraudulent payments—Washington State wanted more than $200 million back from payment processors while Arizona sought to recover $500 million, former employees told us.
• Once again, the signs were hard to miss. Rapper “Nuke Bizzle”, made a popular music video about committing COVID fraud. Several weeks later, he was arrested and eventually convicted for committing COVID fraud. The only payment provider mentioned in the indictment was Cash App, which was used to facilitate the fraudulent payments.
• We filed public records requests to learn more about Block’s role in facilitating pandemic relief fraud and received answers from several states.
• Massachusetts sought to claw back over 69,000 unemployment payments from Cash App accounts just four months into the pandemic. Suspect transactions at Cash App’s partner bank were disproportionate, exceeding major banks like JP Morgan and Wells Fargo, despite the latter banks having 4x-5x as many deposit accounts.
• In Ohio, Cash App’s partner bank had 8x the suspect pandemic-related unemployment payments as the bank that processed the most unemployment claims in the state, even though the latter bank processed 2x the claims as Cash App’s, according to data we obtained via a public records request.
• The data shows that compared to its Ohio competitor, Cash App’s partner bank had nearly 10x the number of applicants who applied for benefits through a bank account used by another claimant – a clear red flag of fraud.
• Block had obvious compliance lapses that made fraud easy, such as permitting single accounts to receive unemployment payments on behalf of multiple individuals from various states and ineffective address verification.
• In an apparent effort to preserve its growth engine, Cash App ignored internal employee concerns, along with warnings from the Secret Service, the U.S. Department of Labor OIG, FinCEN, and State Regulators which all specifically flagged the issue of multiple COVID relief payments going to the same account as an obvious sign of fraud.
• Block reported a pandemic surge in user counts and revenue, ignoring the contribution of widespread fraudulent accounts and payments. The new business provided a sharp one-time increase to Block’s stock, which rose 639% in 18 months during the pandemic.
• As Block’s stock soared on the back of its facilitation of fraud, co-founders Jack Dorsey and James McKelvey collectively sold over $1 billion of stock during the pandemic. Other executives, including CFO Amrita Ahuja and the lead manager for Cash App Brian Grassadonia, also dumped millions of dollars in stock.
• With its influx of pandemic Cash App users, our research shows Block has quietly fueled its profitability by avoiding a key banking regulation meant to protect merchants. “Interchange fees” are fees charged to merchants for accepting use of various payment cards.
• Congress passed a law that legally caps “interchange fees” charged by large banks that have over $10 billion in assets. Despite having $31 billion in assets, Block avoids these regulations by routing payments through a small bank and gouging merchants with elevated fees.
• Block includes only a single vague reference in its filings acknowledging it earns revenue from “interchange fees”. It has never revealed the full economics of this category, yet roughly one-third of Cash App’s revenue came from this opaque source, according to a 2022 Credit Suisse research report.
• Competitor PayPal has disclosed it is under investigation by both the SEC and the CFPB over its similar use of a small bank to avoid “interchange fee” caps. A Freedom of Information Act (FOIA) request we filed with the SEC indicates that Block may be part of a similar investigation.
• Block’s $29 billion deal to acquire ‘buy now pay later’ (BNPL) service Afterpay closed in January 2022. Afterpay has been celebrated by Block as a major financial innovation, allowing users to buy things like a pair of shoes or a t-shirt and pay over time, only incurring massive fees if subsequent payments are late.
• Afterpay was designed in a way that avoided responsible lending rules in its native Australia, extending a form of credit to users without income verification or credit checks. The service doesn’t technically charge “interest”, but late fees can reach APR equivalents as high as 289%.
• The acquisition is flopping. In 2022, the year Afterpay was acquired, it lost $357 million, accelerating from 2021 losses of $184 million.
• Fitch Ratings reported that Afterpay delinquencies through March 2022 had more than doubled to 4.1%, from 1.7% in June 2021 (just prior to the announced acquisition). Total processing volume declined -4.8% from the previous year.
• Block regularly hypes other mundane or predatory sources of revenue as technological breakthroughs. Roughly 31% of Cash App’s revenue comes from “instant deposit” which Block says it pioneered and works as if by “magic”. Every other major competitor we checked provides a similar service at comparable or better rates.
• On a purely fundamental basis, even before factoring in the findings of our investigation, we see downside of between 65% to 75% in Block shares. Block reported a 1% year over year revenue decline and a GAAP loss of $540.7 million in 2022. Analysts have future expectations of GAAP unprofitability and the company has warned it may not be profitable.
• Despite this, Block is valued like a profitable growth company at (i) an EV/EBITDA multiple of 60x; (ii) a forward 2023 “adjusted” earnings multiple of 41x; and (iii) a price to tangible book ratio of 13.1x, all wildly out of line with fintech peers.
• Despite its current rich multiples, Block is also facing threats from key competitors like Zelle, Venmo/Paypal and fast-growing payment solutions from smartphone powerhouses like Apple and Google. Apple has grown Apple Pay activations from 20% in 2017 to over 70% in 2022 and now leads in digital wallet market share.
• In sum, we think Block has misled investors on key metrics, and embraced predatory offerings and compliance worst-practices in order to fuel growth and profit from facilitation of fraud against consumers and the government.
• We also believe Jack Dorsey has built an empire—and amassed a $5 billion personal fortune—professing to care deeply about the demographics he is taking advantage of. With Dorsey and top executives already having sold over $1 billion in equity on Block’s meteoric pandemic run higher, they have ensured they will be fine, regardless of the outcome for everyone else.

Global health body urges increased vigilance to reduce transmission of deadly disease

The World Health Organization has urged African health authorities to step up monitoring and clinical care after Tanzania reported its first outbreak of the virulent Marburg virus.

Marburg spreads to humans from fruit bats and is passed on through direct contact with the bodily fluids of infected patients. The disease is highly virulent, causing haemorrhagic fever and killing up to 88 per cent of those it infects. It belongs to the same family of viruses as Ebola, another deadly disease whose most severe outbreak occurred in several west African countries from 2013-16.

Tedros Adhanom Ghebreyesus, the WHO’s director-general, said on Thursday that eight Marburg cases had been reported in Tanzania, including five deaths. Nine cases have been confirmed in Equatorial Guinea after an outbreak was first reported in the west African country last month.

The WHO was “leading trials of vaccines in the context of the emergency”, he added. There are no vaccines or antivirals approved to treat the illness, with treatment focusing on the rehydration and clinical care of patients.

Tanzania’s Marburg outbreak involved 161 contacts. Its east African neighbours Uganda and Kenya have enhanced border surveillance to help reduce transmission.

Tanzania’s health minister, Ummy Mwalimu, said her government had “managed to control the rate of the new infections of Marburg. So far it has not been reported anywhere else apart from the affected area.”

“We’re determined to end the outbreak within the shortest period of time,” she added.

Abdirahman Mahamud, interim director of the WHO’s alert and response co-ordination department, praised the countries’ responses in dealing with the outbreaks, as the cases were located in remote regions.

WHO said it assessed the risk posed by the outbreak as “very high” at the national level, “moderate” at the regional level and “low” at the global level.

The batch of cases reported in Equatorial Guinea were about 150km apart, “suggesting wider transmission of the virus”, according to the WHO.

Mahamud said the global health body was working “very closely” with Cameroon and Gabon, Equatorial Guinea’s neighbours, as some of the latest cases were in border areas. The subregional risk was “very high”, he added.

“It’s happening right at the border,” he said, urging Cameroon to “increase readiness”.

Marburg incubation ranges from two to 21 days, according to the WHO. The virus is traced back to laboratory work on African green monkeys in the German city of Marburg, where the first cases were detected along simultaneous outbreaks in Frankfurt and Belgrade in 1967. There have been regular outbreaks in Africa since the first cases in South Africa in 1975.

Hedge fund activist Chris Hohn calls for shake-up of Cellnex board

Billionaire’s TCI group wants chair and two directors to step down, citing lack of progress over hunt for new chief

Billionaire hedge fund manager Chris Hohn is attempting to oust three board members at Cellnex in order to hasten the appointment of a new chief executive amid a challenging period for Europe’s largest mobile tower company.

Hohn’s hedge fund TCI, which has a record of embarking on boardroom battles, said it had concerns about “governance” at the Spanish group, particularly surrounding the replacement of Tobias Martínez Gimeno, who stepped down as chief executive in January. He will leave the role in June.

“We believe that Cellnex is a great company, but in our opinion it cannot reach its full potential because it is held back by poor corporate governance,” Hohn wrote in a letter to the Cellnex board, seen by the Financial Times.

“We believe that the . . . hiring process for a new CEO has been mishandled by the board and resulted in insufficient progress to recruiting a suitable replacement,” he wrote as he called for the departure of chair Bertrand Kan and two directors. “As a result we have lost confidence in Bertrand Kan, Peter Shore and Alexandra Reich as effective directors.”

TCI, which owns 3 per cent of Cellnex’s share capital and a further 6 per cent in derivatives, is hoping that one of its own directors, Jonathan Amouyal, will be appointed to the board via “constructive dialogue”. However, if this is not possible, it says it will propose a vote at the company’s next AGM.

Cellnex declined to comment.

The group’s share price has fallen 20 per cent over the past 12 months, at a time when rising interest rates and high levels of debt have shaken up its acquisitive business strategy.

TCI is already involved in corporate controversy in Spain as it has been a forceful advocate of Ferrovial’s plan to shift its head office from Madrid to the Netherlands in order to facilitate the listing of its shares in New York. The infrastructure group sparked fury in the Spanish government when it announced its plan.

Earlier this year, the hedge fund also demanded that the world’s largest plane maker Airbus abandon its bid for a stake in the cyber security arm of French IT company Atos.

The last time Hohn moved against a chair however was when he called for the resignations of the chief executive and chair of Montreal-based railway group Canadian National in 2021, after the company’s failed attempt to buy Kansas City Southern.

Martínez resigned after eight years at the helm of Cellnex during which it became Spain’s largest telecoms group amid a dealmaking spree.

His announced departure came at a time of retrenchment for tower groups around the world. When debt was cheap, masts — the metal structures on which radio antennas sit — were some of the most valuable assets in telecoms, trading at high multiples and offering private investors attractive returns.

But for the past year, rapidly rising interest rates have driven up the cost of capital for these heavily indebted businesses, causing their share prices to tumble.