SEC Opens Fraud Investigation into Chinese Streaming Service iQiyi

Source: Regulation Asia Sanday Chongo Kabange, Regulation Asia 2020-08-18

The investigation into follows an April report from Wolfpack Research alleging Nasdaq-listed iQiyi inflated its revenue, user numbers and expenses.

The US SEC (Securities and Exchange Commission) has launched an investigation into Nasdaq-listed Chinese streaming service provider iQiyi over fraud allegations, CNBC reports.

iQiyi was spun off from Chinese search giant Baidu in a 2018 US IPO. Baidu, also listed in the US, still has a majority stake in iQiyi.

The accusations against the iQiyi follow an April report from Wolfpack Research, which alleged that the company inflated its 2019 revenue by CNY 8-13 billion (USD 1.1-2.0 billion) — or between 27 and 44 percent.

Wolfpack also claimed iQiyi overstated user numbers and expenses.

According to iQiyi, the SEC is seeking the production of certain financial and operating records dating from 1 January 2018, as well as documents relating to certain acquisitions and investments that were identified in the Wolfpack report.

The company said it has engaged professional advisers to conduct an internal review into the allegations.

The SEC investigation of iQiyi comes amid rising scrutiny on US-listed Chinese companies following the scandal at Luckin Coffee, which earlier this year admitted to fabricating 2019 sales numbers and was subsequently delisted from the Nasdaq.

In May, the US Senate passed a bill that would increase auditing scrutiny on Chinese firms listed on Wall Street, with the threat of delisting if they don’t comply.

Earlier this month, a presidential working group released a report recommending the SEC take steps to enhance listing standards on US exchanges to require Chinese companies to provide access to audit work papers in order to remain listed.

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SEC Opens Fraud Investigation into Chinese Streaming Service iQiyi

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