Chinese Netflix-style service iQiyi tanks by 18% after U.S. regulators examine fraud allegations

Shares of Chinese streaming service iQiyi plunged in after-hours commerce within the U.S. after it introduced the Securities and Exchange Commission (SEC) has launched a probe into the corporate.

The SEC investigation was prompted by a report in April from Wolfpack Research, which describes itself as an “activist analysis and due-diligence agency.” In that report, Wolfpack accused iQiyi of fraud and inflating its numbers. 

iQiyi stated the SEC is “looking for the manufacturing of sure monetary and working data courting from January 1, 2018, in addition to paperwork associated to sure acquisitions and investments that had been recognized in a report issued by short-seller agency Wolfpack Research in April 2020.”

The Netflix-style streaming big additionally stated it has “engaged skilled advisers to conduct an inside overview into sure of the important thing allegations” in Wolfpack’s report.

Wolfpack Research alleged  iQiyi inflated its 2019 income by roughly eight billion yuan ($1.13 billion) to 13 billion yuan ($1.98 billion) — or between 27% to 44%. Wolfpack additionally claimed the streaming firm overstated consumer numbers and bills. 

Shares of Nasdaq-listed iQiyi fell over 18% in prolonged commerce however pared a few of these losses. The firm was down 12.36% on the finish of the after-hours commerce interval. 

Yu Gong (middle), founder and CEO of China-based iQiyi (IQ), rings the Opening Bell at Nasdaq MarketSite in Times Square with workers and traders in celebration of its preliminary public providing (IPO) on March 29, 2018 in New York City.

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The SEC probe into iQiyi comes amid rising scrutiny on U.S.-listed Chinese firms following the Luckin Coffee scandal earlier this yr. 

China’s Luckin Coffee admitted to fabricating gross sales numbers for 2019. The firm was subsequently delisted from the Nasdaq in June

In May, the U.S. senate passed a bill that will enhance auditing scrutiny on Chinese companies listed on Wall Street, with the specter of delisting if they do not comply. 

In 2018, iQiyi was spun off from Chinese search big Baidu in a U.S. IPO that raised over $2.2 billion. Baidu, which can be listed within the U.S., has a majority stake in iQiyi. As Baidu confronted elevated competitors in China — in key merchandise like search and promoting — iQiyi grew to become an vital a part of its progress prospects.

In the second quarter, iQiyi membership income grew 19% year-over-year, whereas internet marketing income declining 28% year-over-year, in response to Baidu’s earnings report

Baidu shares had been down 7% in prolonged hours commerce on Thursday on account of the SEC probe into iQiyi.

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