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U.S.-listed Chinese education company GSX Techedu faces investigation by U.S. securities regulator over allegations by short sellers that it tampered with sales .
The Beijing-based company, listed on the New York Stock Exchange last summer, was invited by the Securities and Exchange Commission executive unit to share “certain financial and operational records” from 2017, the group revealed. educational file on Wednesday.
The company, which offers online classes for K-12 students, said it was cooperating with the SEC.
In a May report, Carson Block of Muddy Waters Research alleged that up to 80% of GSX users were fake. He said he short-sold the company’s shares because “we find it to be almost total fraud.” GSX denied the allegations in a statement at the time.
Andrew Left, a short seller who runs Citron Research, has also targeted GSX with similar allegations.
“If the audits are done correctly, they will be reset and removed from the list,” Mr. Left said in an interview. The fact that GSX operates in the highly competitive online education industry has made it easier to spot outliers in the company’s numbers, he said. “It was a very important part of the short thesis. “
The company said on Wednesday it had “engaged third-party professional advisers to perform an independent internal review” of the allegations raised by the short sellers. These advisers were hired before the SEC investigation, the company said.
GSX is the latest U.S.-listed Chinese company to come under scrutiny after Luckin Coffee was delisted from the Nasdaq after it revealed that Rmb2.2 billion ($ 322 million) of sales last year had been “manufactured” and that some costs and expenses were “substantially inflated”.
The Nasdaq revised its listing requirements after the Luckin scandal. In May, the Senate passed a bill that would require Chinese companies listed in the United States to meet local accounting standards, although the House of Representatives has yet to act.
These measures have not hampered US IPOs of Chinese companies. From the start of the year to mid-July, twice as many Chinese companies listed on the US market than in the same period in 2019, 30% more than last year.
News of the SEC investigation came along with GSX’s second quarter results, which showed net revenues jumped 367% from last year to Rmb 1.65 billion. . The company said enrollment in paid courses has reached nearly 1.5 million, thanks to new enrollments and retention of existing students.
The company’s net profit reached Rmb 18.6 million for the period, up 13.4% from the same quarter a year ago.
In the current quarter, the company expects revenues of between Rmb 1.94 billion and Rmb 1.97 billion.
GSX’s U.S. certificates of deposit, which were up more than 300% year-to-date at Tuesday’s close, fell 15% to $ 80.19.