Chinese online streaming provider, iQiyi is being investigated by the Securities and Exchange Commission (SEC) over allegations of inflated earnings. The company, often referred to as the “Netflix of China”, announced the investigation.
iQiyi says it had already begun an internal review of the claims and expects a ‘positive’ outcome. The company is listed on America’s second-biggest stock exchange, Nasdaq, as IQ. iQiyi saw its shares fall 11.6% in pre-market trading on 14th August 2020 after revealing that the SEC had opened an investigation into its practices.
The investigation is a result of a report by activist short-seller Wolfpack Research alleging massive fraud at the firm. Wolfpack Research’s April 2020 report accuses iQiyi of committing fraud before its IPO in 2018. The firm also alleges that the company continued doing so since then.
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iQiyi also allegedly vastly inflated its revenue and users’ numbers, with margins of up to 44% and 60% respectively. iQiyi at the time in a statement said, “the report contains numerous errors, unsubstantiated statements, and misleading conclusions and interpretations.”
The investigation comes on the back of a similar scandal at another Chinese company, Luckin Coffee. Luckin Coffe had admitted to falsifying some of its sales numbers. Nasdaq eventually delisted the company and it fired its chairman and CEO.
iQiyi says it is cooperating with US investigators and is seemingly resigning to fate. “We cannot predict the timing, outcome or consequences of the SEC investigation,” it said in a statement.
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