Shares in dual-listed Block (ASX:SQ2) fell more than 18% on the ASX on Friday after a US short seller, Hindenburg Research, released an extensive report accusing the parent company of local fintech Afterpay of inflating user stats and facilitating fraud after it used Block’s Cash App to order a debit card under the Donald Trump name.

Blok closed Friday at $88.94, down 18.4%. The company is also listed on the New York Stock Exchange, where shares fell 22% before the market closed and remained about 15% lower at US$61.88 in after-hours trading.

In response, the company said it will “investigate legal action against Hindenburg Research for the factually inaccurate and misleading report they shared about our Cash App business.”

The New York short-seller says it spent two years compiling its file against the company, titled: “Block: How Inflated User Metrics and ‘Frictionless’ Fraud Facilitation Enabled Insiders To Cash Out More Than $1 Billion .”

Block replied that Hindenburg is known for this type of attack, designed to allow short sellers to profit from a falling share price.

“We have reviewed the full report in the context of our own data and believe it is intended to mislead and confuse investors,” Block’s statement said.

“We are a highly regulated public company with regular disclosures and are confident in our products, reporting, compliance programs and audits.”

Block was originally co-founded by Twitter co-founder and former CEO Jack Dorsey. The company acquired Australian fintech Afterpay, buy now, pay later for A$39 billion.

The Hindenburg report targets Afterpay as a bad deal for Block, while also accusing its business model is built around loopholes amid mounting losses.

Afterpay’s results, released after the merger in April last year, saw its loss for the six months to the end of 2021 climb to $345.5 million in the red. The company’s bad debts are also growing, as Hindeburg points out.

“Afterpay is designed to avoid responsible lending regulations in its native Australia, providing a form of credit to users without income verification or credit checks,” the report said.

“The service technically doesn’t charge ‘interest’, but late fees can be as high as APR equivalents of 289%.”

But most of the criticism is based on Block’s Cash app with the short seller pointing out scam accounts and fake users.

“We ordered a Cash Card under our blatantly bogus Donald Trump account, to verify that Cash App compliance would be in order – the card arrived promptly in the mail,” the report said, arguing that the evidence is that the user statistics are exaggerated.

“Even when users were caught committing fraud or other prohibited activities, Block blacklisted the account without banning the user,” it said.

It also used data from the state of Massachusetts, where 69,000 unemployment benefits were recovered from the bank behind Cash App accounts, well above the industry average.

“Block ignored both internal and external warnings that multiple individuals using the same bank account number to receive government funds was a brutal red flag of fraud,” the report said.

“Multiple key flaws in Cash App’s compliance processes have enabled billions in government payment fraud.”

Hindenburg also focused on the ethics behind Block’s products.

“The magic behind Block’s business has not been disruptive innovation, but rather the company’s willingness to enable fraud against consumers and the government, avoid regulation, dress up predatory lending and fees as revolutionary technology, and mislead investors with inflated statistics,” it said.

How it works out for both sides remains to be seen, but Block will undoubtedly be hard at work on WiseTech Global’s skirmish with China-based short seller J Capital, which released a series of critical reports in late 2019 and early 2020.

WiseTech (ASX:WTC) shares were just under A$39 and billions were wiped from the company’s market cap in the wake of the reports. WiseTech shares closed at $63.42 today and the company is now Australia’s most valuable tech stock.