Roblox video game for children titled “Pedophile Hellscape.”

A hugely popular online children's video game has been labeled a “pedophile hellscape” by a notorious US investment firm, wiping out billions of dollars in value from the company.

Hindenburg Research, one of Wall Street's most prominent short sellers, alleged that Roblox users were openly trading child abuse images and claimed to have found hundreds of accounts named after Jeffrey Epstein.

The investment firm claimed that young users were being exposed to grooming, pornography and violence and that safety was being compromised to increase profits.

It said there was no age control in chat rooms dedicated solely to adult content.

Bosses rejected opportunities to improve safety, Hindenburg claimed.

“We have discovered that Roblox is an adult pedophile hellscape, full of users attempting to manipulate our avatars, groups that openly traffic in child pornography, widely accessible sex games, violent content, and extremely offensive language – all open to young children and all,” while Roblox has cut spending on content moderation to appease Wall Street and increase revenue,” Hindenburg said.

Roblox denied the report's claims. A spokesperson said the company has “a robust set of proactive and preventative security measures designed to detect and prevent malicious or harmful activity on our platform.”

As trading began in New York, the company's shares fell more than 9 percent, shedding more than $2 billion (£1.5 billion) from the company's value.