Two Chinese companies listed in the US are now under added scrutiny by investors and regulators following the discovery of the faked financial statements submitted by Luckin Cofee. The sales numbers of the Chinese coffee chain operator were altered by its chief operating officer, along with other employees, according to the company's internal investigation.
Just days after Luckin Coffee admitted to the $310 million accounting fraud, major investors in the US along with other agencies have begun to look closely at the financial reports of other Chinese firms listed in the country. Analysts expect that the scandal could pose long-term challenges for other foreign firms who are seeking to raise funds in the US.
An employee of Beijing-based tuition center operator, TAL Education Group, was reportedly discovered by the company of having inflated its sales numbers by hundreds of millions of dollars. Meanwhile, activist short-seller Muddy Waters and Wolfpack Research have set their eyes on Chinese video-streaming firm iQiyi, which they had accused of inflating its 2019 revenues by up to 44 percent.
The short sellers further accused iQiyi of inflating its user base by over 60 percent. In response to the accusation, iQiyi admitted that there may have been some errors and unsubstantiated statements in its report. However, the company denied that it had intentionally inflated its numbers. Shares of the NASDAQ-listed Chinese firm fell in after-hours trading yesterday, falling by more than 3.6 percent to around $16.68 per share.
The employee that TAL had accused of inflating its sales has since been arrested in China. The company, which provides mainly K12 after-school tutoring services, revealed that the employee had conspired with vendors and created forged contracts of its online teaching modules that accounted for about 4 percent of the company's revenues for the year.
The faked contracts were estimated to have been worth around $138 million, a significant chunk out of the company's reported $3.4 billion revenues for its year ending on February 29.
According to a report published by Muddy Waters, it claims that the fabrication of the company's financial data may have gone as far back as 2016. TAL, which shares are listed at the New York Stock Exchange, has outright denied Muddy Waters' accusations. Following the report, TAL's share prices tumbled by as much as 28 percent to around $45.90 during after-hours trading.
TAL is Muddy Water's second successful short this week following its big short of Luckin Coffee's shares, which had lost more than $2.11 billion in market value since the scandal became public.
