Video streaming firm iQIYI revealed in its latest quarterly report that it was being probed by the Securities and Exchange Commission over potentially inflated sales figures from accounting fraud.
The SEC is seeking financial and operating records that date back to the start of 2018, according to a statement iQIYI's second-quarter results, «documents related to certain acquisitions and investments that were identified in a report issued by short-seller firm Wolfpack Research in April 2020».
Wolfpack Research is an activist short seller and, alongside Muddy Waters, accused iQIYI of inflating its 2019 revenue and user base figures by 44 percent and 60 percent, respectively.
Professional advisors were hired to conduct an internal review into some of the Wolfpack allegations, said iQIYI which claims it is in the process of determining if manufacturing orders, revenue or expenses had been inflated.
Made in China
Sometimes called «China’s Netflix», iQIYI’s accounting probe follows closely on a series of scandals involving not only Chinese companies but ones that have been promoted as mainland versions of existing American successes. For example, Luckin Coffee – dubbed «China’s Starbuck» – was also embroiled in a scandal that resulted in its Nasdaq delisting over fabricated sales of 2.25 billion yuan ($324 million).
Other notable scandals from U.S.-listed Chinese companies include Kingold, which was found to have secured nearly $3 billion in load based on 83 tons of collateralized gold that was later found to be gilded copper.
Tighter listing requirements from the exchange and a perceivably less China-friendly administration has led many mainland firms to reconsider their U.S. listings and opt for Hong Kong. Similarly, iQiYI is also reportedly mulling a secondary listing in Hong Kong and is currently holding early stage discussions with Credit Suisse.
