iQiyi revealed that the U.S. Securities and Exchange Commission is investigating the company in the wake of a report issued by noted short-seller Wolfpack Research back in April.
The Wolfpack report alleges that iQiyi had been cooking the books, even prior to its 2018 IPO, by reporting fraudulent user numbers that are overstated by as much as 60%. The report goes on to say that iQiyi’s revenue was inflated as high as 44% to correspond with the overstated user numbers.
The company states: “The SEC’s Division of Enforcement is seeking the production of certain financial and operating records dating from January 1, 2018, as well as documents related to certain acquisitions and investments that were identified in a report issued by short-seller firm Wolfpack Research in April 2020. The Company is cooperating with the SEC. We cannot predict the timing, outcome, or consequences of the SEC investigation. In addition, shortly after the publication of the Wolfpack Report, the Company engaged professional advisers to conduct an internal review into certain of the key allegations in the Wolfpack Report and to report their findings to the Company’s Audit Committee. These professional advisers have been examining the Company’s books and records and undertaking testing procedures that, in their judgment, are necessary and appropriate to evaluating the key allegations in the Wolfpack Report, including accounting policy analysis, data analytics on whether the Company manufactured orders and inflated revenues and/or expenses. The Internal Review is ongoing and we cannot predict the timing for completion, outcome, or consequences of the Internal Review at this time.”
Iqiyi Inc., a Chinese Netflix-style streaming service that’s backed by Baidu Inc., tumbled as much as 19% after disclosing that the company is under investigation by the U.S. Securities and Exchange Commission. Meanwhile, Baidu posted a smaller-than-forecast drop in revenue after its online advertising business bounced back from the pandemic. Tom Mackenzie reports on “Bloomberg Daybreak: Australia.”