On Thursday, the company said it was under investigation by the U.S. Securities and Exchange Commission. The SEC is seeking financial and operational records since January 2018, as well as documents related to acquisitions and investments mentioned by short seller Wolfpack research in its April report.
iqiyi said the company was cooperating with the investigation and had hired consultants for internal audit. The company was unable to predict the duration and outcome of the SEC investigation.
iqiyi said in a statement released at the same time as the second quarter results, “these professional consultants have been checking the company’s accounts and records and implementing testing procedures, which they believe are necessary and appropriate to assess the key allegations in Wolfpack’s report.” The assessment will include “an analysis of accounting policies, as well as an analysis of whether the company fabricated orders and inflated revenue and / or expenses”.
after the news came out, iqiyi’s share price fell by 19% after hours. The company’s shares fell 2.43% to $21.68 on Thursday. The stock is up 2.7% this year.
in April this year, iqiyi was shorted by Wolfpack research, which claimed that iqiyi’s revenue in 2019 was exaggerated by 8-13 billion yuan. In this regard, iqiyi has said that the short report quoted data and conclusions are seriously untrue, and the company firmly denies all false accusations.
the short report pointed out that iqiyi had fraud long before its IPO in 2018 and has continued to this day. Wolfpack research estimates that iqiyi exaggerated its revenue in 2019 by about RMB 8-13 billion, or 27% – 44%, and iqiyi achieved this goal by boasting about 42% – 60% of its users. In addition, iqiyi overstated the costs it paid for content, other assets and acquisitions, hiding fraud from auditors and investors by burning counterfeit money, the report said.