Chinese Netflix Under SEC Investigation

After regulators began looking into inflated earnings relating to iQiyi (IQ), a platform many call the “Netflix of China.” Shares for iQiyi (IQ), a company listed on the Nasdaq dropped almost 12% on Friday in pre-market trading after the US Securities and Exchange Commission revealed an investigation had been opened into iQiyi’s practice following a report that alleged substantial fraud.

The company, for its part, has stated it has begun investigating the accusations internally and it is anticipating a positive outcome. The report in question, which was released in April by Wolfpack Research, made accusations against iQiyi that it committed fraud prior to its 2018 IPO. Furthermore, the report claims the company continues these practises and has massively inflated user numbers and revenue by as much as 60% and 44% respectively.

iQiyi responded to the allegations stating that: “the report contains numerous errors, unsubstantiated statements and misleading conclusions and interpretations.” However, since the reports release, Chinese companies trading on US stock exchanges have faced increased scrutiny, in part due to the Luckin Coffee scandal, which saw the upstart falsifying sales figures. Since the discovery, Luckin Coffee has been removed from Nasdaq, and its CEO and Chairman were both terminated.

Wolfpack referenced the sage with Luckin in his report saying: If what we’ve said thus far doesn’t concern you, all we can say is ‘good Luckin.'” The company is owned by Baidu, a Chinese search giant. It lays claims to hundreds of millions of active users, of which most are located in China. Baidu is known for its library of popular television, reality and drama shows as well as its extensive library of movies.

The Early Morning Presentation

During an earning presentation on Thursday, the companies management team disclosed the US Securities and Exchange Commission probe stating that it is “cooperating” with US regulators. It ins statement, iQiyi said: “We cannot predict the timing, outcome or consequences of the SEC investigation.”

While the investigation is on-going, it is bringing to light the deceptive practices that are common with Chinese business. The result has already seen a substantial decline in Chine company trading, and if proven to be correct, it will further damage the credibility of Chinese owned and run business.