The report accused Block of a "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."
"CEO Dorsey has touted how Cash App is in hundreds of hip hop songs as evidence of its appeal," the report says. "But artists are not rapping about Cash App's smooth user interface — many describe using it to scam, traffic drugs or even pay for murder."
Hindenburg also alleged user counts which ballooned during the pandemic ignored "widespread fraudulent accounts and payments."
On Thursday afternoon, Block responded to Hindenburg's piece with the following statement:
"We intend to work with the SEC and explore legal action against Hindenburg Research for the factually inaccurate and misleading report they shared about our Cash App business today.
Hindenburg is known for these types of attacks, which are designed solely to allow short sellers to profit from a declined stock price. We have reviewed the full report in the context of our own data and believe it’s designed to deceive and confuse investors.
We are a highly regulated public company with regular disclosures, and are confident in our products, reporting, compliance programs, and controls. We will not be distracted by typical short seller tactics."
Back in the summer of 2020, Hindenburg published a famous report that revealed EV maker Nikola (NKLA) had been rolling prototypes downhill and claiming these vehicles were driving themselves, among other nefarious behaviors at the company.
Nikola founder Trevor Milton later resigned from the company and was charged with securities fraud and wire fraud by a grand jury in 2021.
In its latest report, Hindenburg alleges, "Block has quietly fueled its profitability by avoiding a key banking regulation meant to protect merchants," citing "interchange fees" charged to merchants for accepting use of various payment cards.
Those are capped if 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," according to Hindenburg's report.
Hindenburg also pointed to co-founders Jack Dorsey and James McKelvey collectively selling over $1 billion of stock during the pandemic.
Block's stock saw its biggest decline since May on Thursday. Shares are down more than 50% compared to a year ago.
Block has 41 Buy, 10 Hold and 2 Sell recommendations by Wall Street analysts.
Ines is a senior business reporter for Yahoo Finance. Follow her on Twitter at @ines_ferre