On early Friday, China’s Netflix-like platform iQiyi showed a steep fall in its shares. The shares dropped abruptly after the Beijing-based streaming service announced the probe launched by the Securities and Exchange Commission (SEC) into the company. iQiyi shares plunged over 18% in the extended trade; however, the company managed to lessen some losses too. At the end of the after-hours trade period, the company was down by 12.36% — a recovery of about 5%.
The video and movie streaming service iQiyi is owned by Baidu – China’s own search engine. A firm called Wolfpack Research has accused the company of fraud that has prompted the SEC investigation into the company — the effect being, bringing the company’s shares down.
iQiyi SEC Probe Details
iQiyi has said that the SEC has asked them to produce the financial and operational records starting from January 1, 2018. It says, the investigation agency has also sought the documents related to the acquisitions, plus the investments done by the company that surfaced in the report of Wolfpack Research in April this year.
The company adds that it has currently engaged the professional advisers in conducting an internal review into the Wolfpack’s allegations.
Allegations Against iQiyi
According to Wolfpack Research, iQiyi in 2019 allegedly inflated its revenue by approximately $1.13 billion to $1.98 billion, which accounts an increase from 27% to straight 44%. The firm has also accused the service of overstating the user numbers and expenses.
This is not the first company facing an SEC probe amid the rising scrutiny on Chinese companies in the US. The US department earlier this year had found another Chinese company Luckin Coffee guilty of fabricating its numbers. Luckin Coffee even admitted that it fabricated its sales numbers for the year 2019.
The US Senate has also passed a bill in May to increase the auditing scrutiny on Chinese firms. The companies who don’t comply are likely to get delisted from the Nasdaq as Luckin Coffee got delisted in June.