Report Claims ‘Criminal Activity and Fraud Run Rampant' on Cash App—What Users Need to Know

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A new report from Hindenburg Research, a short seller investment firm, released Thursday has accused Block — the company formerly known as Square, founded by Jack Dorsey — of allowing crime and fraud to "run rampant" on its peer-to-peer payment app, Cash App. 

The report alleged that Block inflated its customer growth, allowed fake accounts to thrive and dodged revenue regulations — an accusation that triggered a Securities Exchange Commission (SEC) investigation. 

Hindenburg claims it was able to open fake accounts on Cash App under names Donald Trump and Elon Musk.

"Former employees estimated that 40%-75% of accounts they reviewed were fake, involved in fraud, or were additional accounts tied to a single individual," Hindenburg said.

Block called the report "factually inaccurate" in a statement, and says it is complying with the SEC and exploring legal action against Hindenburg. The immediate impact was a 15% drop in Block's stock price.

Block has yet to be charged with any wrongdoing, either by regulators or government agencies.

It's worth noting last March, Block revealed it was the subject of a Consumer Financial Protection Bureau (CFPB) investigation over the way Cash App handles user complaints. In August, the CFPB sued to get Block to comply with its inquiry.

The allegations can serve as a helpful reminder to always be on the lookout for scammers, especially when it comes to moving your money.

Cash App scams to watch out for

Cash App is the third most-popular peer-to-peer payment app behind PayPal and Venmo, according to a recent Consumer Reports survey. Among those who use any of the apps at least once a week, 9% report having been scammed before, the survey found.

All to say, scams have certainly happened through Cash App, as well as the other apps.

But in general, Cash App might just be the tool a scammer uses to to swindle you. For example, a bad actor could try to sell you a puppy or kitten online and request a deposit through Cash App, but you never actually meet your new furry friend.

Still, there are a few common scams specific to the Cash App platform that you might have seen or want to look out for.

1. Cash flipping

Cash App often hosts giveaway contests through its verified Twitter account, but users hoping to win are often targeted by scammers. The bad actors prey in the comment sections of legitimate giveaways and tell users they can turn a small amount of money, such as $5 or $10, into a larger sum. Once you send them the small amount, the scammer disappears with your money.

2. Accidental payment

If you've ever gotten a random deposit to your Cash App account, there's a good chance someone is trying to scam you. With this scam, fraudsters send you money and then tell you they sent it to you by mistake, and ask for the money back. The idea is that you pay them from your account funds and the scammer disputes their original payment with their bank — they end up getting reimbursed twice.

Cash App instructs users to refund random payments like these, rather than creating a new payment to return the money. The company advises against accepting payments from strangers as well as sending money to unknown usernames.

3. Claim your payment

Similar to cash flipping, this scam involves tricking you into thinking you've won a prize or you can earn money with a small "investment." The scammer tells you to claim a payment owed to you by first sending them money. But Cash App says it never asks users to "claim" legitimate payments sent to them through the app.

How to protect yourself from fraud

In a perfect world, there wouldn't be so many bad actors trying to take your money. But for now, you have to do your best to protect yourself.

In addition to watching out for the scams listed above, the Federal Trade Commission says to look out for the four Ps to identify common scams:

  1. Pretend — Someone is pretending to know you or be associated with an organization you know, like the Internal Revenue Service (IRS) or Medicare.
  2. Problem/Prize — A fraudster says they're in trouble or that you can benefit from first giving them money.
  3. Pressure — Do they need you to act quickly or immediately? That's probably a scam.
  4. Payment — If you're told you need to pay for something — like when you're buying from an online marketplace or what appears to be a small business — in a specific way like with crypto or by wiring money, you shouldn't do it. 

The CFPB is continuing to monitor peer-to-peer payment apps and looking for more ways to protect consumers from fraud. In the meantime, stay vigilant and only send money to people you know. 

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