The payments company run by tech billionaire Jack Dorsey is under investigation after he accused it of inflating the number of users and catering to criminals.
The company denied the block claims, sending its shares tumbling 15 percent.
The report comes from short-seller Hindenburg Research, known for holding high-profile targets such as Indian tycoon Gautam Adani.
The company makes money betting stocks will fall and is poised to benefit from the slide.
In the year Block, which was co-founded in 2009 by former Twitter boss Dorsey and is now chief executive, said it was investigating legal action against Hindenburg for “factually inaccurate and misleading reporting”.
“We are a highly regulated public company with regular disclosures, and we are confident in our products, reporting, compliance programs and controls. We will not be distracted by traditional short seller tactics.”
Block, formerly known as Square, made its name with a slim white credit card reader popular with farmers’ market vendors and other small businesses, valuing the company at around $3bn (£2.4bn) when it listed. On the stock exchange in 2015.
Now valued at more than $30bn (£24.4bn), it has been named Block in 2021 to reflect another fast-growing side of the business: Cash App, the payment app that was the focus of the Hindenburg Report.
Hindenburg Bloc has provided misleading statistics on its users, which it claims are linked to criminal activities such as sex trafficking.
During the investigation, Hindenburg said he easily created fake cash app accounts in the names of Donald Trump and Elon Musk and filed public records requests. .
He said they reflected “key flaws” in compliance procedures.
“Former employees described how Cash App stifled internal threats and ignored users’ pleas for help as criminal activity and fraud became rampant on the platform,” Hindenburg said. “This appears to be an attempt to increase the Cash app’s user base by systematically ignoring Anti Money Laundering (AML) laws.”
Stocks across the bloc fell on fears of a slowdown in economic activity and consumer spending. The Cash app is connected to the world of cryptocurrencies that have seen their values plummet.
Mr Dorsey, who splits his time between Twitter and Square, stepped down as chief executive of the social media company in 2021. Twitter was later sold to billionaire Elon Musk for $44bn (£35.8bn).