A prominent short-seller just released a bombshell report on payments darling Block. Here are the 4 biggest claims.

• Hindenburg Research on Thursday released a scathing report about Block, saying it inflated metrics.
• In response, the payments company said the report was "factually inaccurate and misleading."

Hindenburg Research on Thursday released a scathing report on Block's Cash App platform, alleging inflated metrics, fake accounts with names like "Donald Trump and "Elon Musk," and lack of enforcement so prevalent that rappers bragged about it in hip-hop songs.

The short-seller financial research firm led by Nathan Anderson said it has taken a short position on Block shares after its two-year probe. Block shares plunged after the report was released.

In a statement to Insider, Block called the report "factually inaccurate and misleading," and said it plans to work with the Securities and Exchange Commission and "explore legal action" against Hindenburg.

"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," Block said in a statement that was also posted on its website.

For its part, Hindenburg said it conducted dozens of interviews with former employees, partners, industry experts and reviewed records, including regulatory and litigation documents.

"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," Hindenburg wrote.

Here are some of Hindenburg's allegations against Block:

1) Block embraced 'unbanked' criminals

Hindenburg said Block's "Wild West" approach to compliance makes it easy for "bad actors" to mass-create accounts for scams, including identity fraud, then extract stolen funds quickly. It said Cash App's "frictionless approach" lets users join with only an email or a phone number.

The firm said even when users were caught engaging in fraud or other prohibited activity, Block blacklisted the account without banning the user.

"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," Hindenburg wrote.

2) Up to 75% of accounts are fake

Hindenburg alleged the byproduct of Cash App's approach to permitting duplicate and scam accounts is that it has reported inflated active user counts for years.

"Former employees estimated that 40%-75% of accounts were fake, involved in fraud, or were additional accounts tied to a single actual individual," it wrote.

3) It's easy to impersonate high-profile people, including Block boss Jack Dorsey

Former employees told Hindenburg that Cash App's system lets users change their names to ones that don't match those provided when they created their accounts.

Hindenburg said in testing the system, it created two accounts and changed their outward-facing personas to "Elon Musk" and "Donald Trump," and that it was able to successfully exchange funds on the platform. The firm also said it ordered and "promptly received Our Donald J. Trump Visa Cash App card in the mail."

It saw multiple Cash App accounts bearing the name "Jack Dorsey" as well as dozens of "Elon Musk"' and "Donald Trump'" fake accounts as well.

The firm said Block recently began asking Cash Card users to provide full Social Security numbers and now acknowledges that action is a legal requirement.

4) Block ignored obvious signs of fraud related to pandemic-relief funds

Dorsey's tweets urging users without bank accounts to receive COVID-relief money through Cash App "served as a siren song for scammers," said Hindenburg.

The researcher said obvious lapses in Cash App's compliance processes facilitated its "disproportionate pandemic-related fraud," adding that the biggest failure was the company's willingness to allow multiple individuals to receive payments into a single account.

"Rather than responding to warnings regarding these lapses, Block management mostly ignored them in the interest of preserving its growth engine, despite the consequences to taxpayers, according to interviews with former employees," said Hindenburg.

Hindenburg even noted that a rapper named Nuke Bizzle who made a music video about committing COVID fraud was later sent to prison for more than six years on fraud and other crimes.

"The only payment provider mentioned in the indictment was Cash App, which was used to facilitate the fraudulent COVID relief payments," wrote Hindenburg.