“No other senior management has pledged any shares, as far as the company is aware,” she added. “Like so many other China-based companies who IPO with inflated numbers, [iQIYI] is unable to legitimately grow their business enough to true up their financial statements,” the firm wrote. The Chinese tech giant To many analysts -- including those at Credit Suisse Group AG, which led the company’s initial public offering -- the Chinese online education firm remains a buy, and detractors just don’t understand the business model. Baidu He estimates the market share of the online large-class, after-school tutoring industry will reach 20% in five years, up from 3.5% now, and generate 200 billion yuan in revenue. XL Fleet (NYSE:XL) fell 19% as it was revealed as Muddy Waters issued a new short call. JD.com, Short-selling investment firm Muddy Waters cannot be sued for trade libel over an anonymous report that accused a Chinese aluminum company of fraud, a California appeals court ruled Wednesday. announced an internal probe into alleged fraud by one of its executives. Activist firm Wolfpack Research released a … Short sellers’ views can be healthy in equity markets where analysts’ reports on companies’ prospects are frequently too rosy. For non-personal use or to order multiple copies, please contact Dow Jones Reprints at 1-800-843-0008 or visit www.djreprints.com. Muddy Waters is known for publicly short selling stocks. ... Others are wagering against companies after they combine with SPACs. Meanwhile, Nasdaq Inc. is looking into IPO rules that would make it harder for some Chinese companies to go public on the exchange. iQIYI, IQIYI records the full revenue for those memberships, but lists its partners’ share of that claimed income as an expense, according to the Wolfpack report. (LK) recently announced an internal probe into alleged fraud by one of its executives, news that caused the stock to shed nearly 80% of its value last Thursday. Distribution and use of this material are governed by our Subscriber Agreement and by copyright law. The Swiss bank, which helped several other Chinese companies go public in the U.S., posted a fivefold jump in loan-loss provisions at its Asia-Pacific unit, primarily because of a default by Luckin’s founder, Lu Zhengyao. often called the Netflix of China, dropped sharply, but then recovered on Tuesday, following allegations by a research firm—backed by the short seller Muddy Waters Capital—that it inflated 2019 revenue and user numbers. Wolfpack Research was launched last year by veteran activist short seller Dan David, mainly focusing on exposing fraud and corporate wrongdoing at public companies around the globe. Carson Block, chief executive of Muddy Waters Capital. In January 2015, the firm raised an initial $100 million for its investment strategy. A Ripple in the Muddy Waters: The Luckin Coffee Scandal and Short Selling Attacks. secretive billionaire has publicly taken the opposite side of a trade from short seller Muddy Waters Capital LLC will work out better than the first. Muddy Waters said on Tuesday that it helped Wolfpack prepare the report and that it has taken a short position in iQIYI—a bet that the price will decline. To order presentation-ready copies for distribution to your colleagues, clients or customers visit http://www.djreprints.com. (Reuters) - Shares of XL Fleet Corp, which provides electric drive systems to enhance vehicle fuel economy, fell as much at 19.5% on Wednesday after U.S. short-selling firm Muddy Waters … In early May, Scorpio VC concluded the financial data “is not up to the test.” Muddy Waters joined the fray last week, claiming at least 70% of the firm’s users are robots and calling it a massive loss-making business. “Muddy Waters did some homework for the report,” he wrote last week in a post on Weibo, China’s version of Twitter. Muddy Waters’ misunderstanding may be because it didn’t try its live courses, or it did and ignored part of the process, a GSX spokeswoman wrote in an email. Muddy Waters is Short Groupe Casino (CO:FP) Groupe Casino Guichard-Perrachon SA: 2015-12-17: Muddy Waters is Short TeliaSonera (TLSN.ST) TeliaSonera AB: 2015-10-15: Muddy Waters is Short Noble Group Ltd (NOBL:SP) Noble Group Ltd: 2015-04-08: Bolloré (BOL FP): Complexity Creating Arbitrage with over 95% Upside: Bolloré S.A: 2015-02-17 That has helped add almost $830 million to Chen’s fortune, now worth $3.2 billion, according to the Bloomberg Billionaires Index. “In other words, [iQIYI]’s management can effectively assign any value they want to these transactions, providing an easy opportunity to inflate its revenues,” Wolfpack wrote. Stock in the video-streaming platform iQIYI, often called the Netflix of China, dropped sharply, but then recovered on Tuesday, following allegations by a research firm—backed by the short seller Muddy Waters Capital—that it inflated 2019 revenue and user numbers. Muddy Waters, the short investigation firm, has just issued a damning report on BUR. At GSX, an instructor uses a web platform to teach several hundred students with the help of tutors -- a format that’s increasingly appealing in a world with fewer social interactions. 2019: Muddy Waters Research (58.46%) Carlson Block's Muddy Waters has a knack for launching an all out assault on the companies it is shorting. In a 37-page report, Wolfpack Research said it conducted in-person surveys of 1,563 people within iQIYI’s target demographic in China and that 548 of them were effective paying subscribers to the company’s VIP memberships. The post-IPO revenues continue to be overstated as well, Wolfpack said. Short-selling firms like Hindenburg Research, Viceroy Research, and Muddy Waters have earned outsize attention—and big windfalls—by shining a harsh light on overhyped companies. “It’s just a pity that they didn’t understand the business model of our online live large class.”. Among those, approximately one third obtained their VIP memberships through iQIYI partners such as Chen said in April he pledged 5.1 million ADRs -- currently worth about $152 million -- to Credit Suisse for a $50 million loan facility, and the GSX spokeswoman said he hadn’t made additional pledges since then. Wolfpack said iQIYI’s deferred revenues—prepaid by subscription customers for membership services—reported to the Securities and Exchange Commission in its IPO prospectus were inflated by 261.7%, 165.5%, and 86.2% for 2015, 2016, and 2017, respectively. GSX’s response: “Muddy Waters is bluffing.”. We conclude that the real green technology at XL is duping investors into throwing money at this company through a collection of exaggerations, half-truths, and mistruths. The company is named after the Chinese proverb "渾水摸魚", meaning "muddy waters makes it easy to catch fish." https://www.barrons.com/articles/short-seller-muddy-waters-luckin-coffee-chinas-iqiyi-51586294898. “Don’t they care about their conscience and reputation?”. U.S.-listed shares of Israel's Nano-X Imaging Ltd fell nearly 20% on Tuesday after short-seller Muddy Waters joined Citron Research in raising doubts over the company's diagnostic product. it has taken a short position in iQIYI—a bet that the price will decline. Muddy Waters Capital LLC announced last week it … Chen started his career as a middle school teacher at age 17, according to GSX’s website. I want … Stock in the video-streaming platform Short seller firm Muddy Waters on March 3 threw down the gauntlet on XL Fleet Corp (NYSE: XL), a maker of electric drive systems for commercial fleet vehicles. The ADRs have tumbled 34% from their Feb. 24 peak. As a short selling research firm, Muddy Waters (MW) earned its reputation by successfully revealing several fraudulent Chinese firms listed in the US. This copy is for your personal, non-commercial use only. Microsoft and partners may be compensated if you purchase something through recommended links in this article. GSX has higher penetration than peers in low-tier Chinese cities, with better product differentiation and market channels. Born in a poor village in northern China, Chen’s father helped him enroll in a tuition-free vocational training school for teachers. Short-seller Carson Block is placing more bets against SPACS, according to a Bloomberg report. Block's Muddy Waters also disclosed a short of Chinese video streaming site iQiyi, often called the "Netflix of China.". (Updates with Credit Suisse lending review in 11th paragraph, Chen’s fortune and stock moves throughout), For more articles like this, please visit us at bloomberg.com, Like us on Facebook to see similar stories, DHS stands up domestic terror intelligence team, FAA hits two untruly passengers with fines totaling $20,000. Muddy Waters Joins Short Sellers Pounding Away at GSX (Bloomberg) -- To some short sellers, GSX Techedu Inc. is an “ almost completely empty box ,” … Muddy Waters Research, a prominent short-seller, is shorting XL Fleet. The spotlight on Chinese companies listed in the U.S. intensified in early April with an accounting scandal at Luckin Coffee Inc., which several short sellers noted in presenting their arguments against GSX. In his Weibo post last week, Chen said he is “surprised and confused” about short sellers’ attitude. They are, of course, a bunch of di*** who want the retail investors to lose while they make a boat-load of money. Most Wall Street analysts tracked by Bloomberg remain bullish on GSX, with 12 of them recommending that investors buy the ADRs, compared with one sell rating. We've detected you are on Internet Explorer. The report looks fair enough to me to be honest - it centers around accounting for the gains claimed. Connect with friends faster than ever with the new Facebook app. Then, in late February, Grizzly Research started questioning GSX’s results. Copyright ©2021 Dow Jones & Company, Inc. All Rights Reserved. “Weakness and ignorance are not barriers to survival, but arrogance is,” Chen added, quoting the novel “Death’s End” by Chinese author Liu Cixin. MW’s combination of short selling and equity research is a clever business model, necessary to satisfy the market’s need for research analysts/firms independent of sell-side companies. In its report, Muddy Waters said Chen pledged at least $318 million of ADRs to banks, putting investors at risk if the margin lenders were to sell the securities. Clermont Group disclosed a . Famous short selling research firm, Muddy Waters, is going after another Chinese company after highlighting questionable accounting at Luckin Coffee, now halted on the Nasdaq. Muddy Waters is short XL Fleet Corp. (NYSE: XL) because it strikes us as middle of the fairway SPAC garbage. The report also accused iQIYI of inflating the value of the content it provides through its streaming service, a figure that is usually determined internally. ET When an investor short sells a company’s stock, it is betting that the stock will decline rather than increase. Muddy Waters Capital, the activist investment firm that exposed the alleged fraud at Luckin in January, has made an initial investment in Wolfpack. iQIYI said in a statement released Tuesday afternoon that Wolfpack Research’s report contains “numerous errors, unsubstantiated statements and misleading conclusions and interpretations.” The company said it remains committed to high standards of corporate governance and internal controls. The Beijing-based provider of online K-12 courses reported 2.1 billion yuan ($294 million) in revenue last year, a fivefold increase from 2018, with 2.7 million enrollments and students in more than 190 countries. Muddy Waters Capital disclosed a 0.5% short in this Swedish provider of credit management services and solutions (such as, debt collection and debt surveillance). Muddy Waters was founded by Carson Block, an American short-seller. Lisa Pham, December 30, 2019, 1:00 AM EST Muddy Waters finds more targets, also more ‘investor apathy’ In a report released Tuesday morning, the firm Wolfpack Research claims that iQIYI (ticker: IQ)was committing fraud well before its initial public offering in 2018 and has continued to do so. Short sellers are coming for SPACs. Carson Block: Biggest Calls From The Muddy Waters Short-Seller Justin economy , investing , Investing & Trading , stocks , trading , useconomy December 7, 2020 December 16, 2020 9 Minutes BroStocks is a financial entertainment and education web site. Shares of iQIYI tumbled 11.2% Tuesday morning before bouncing back to gain 3.2% as of the close. Carson Block, the founder of Muddy Waters Capital, likes to talk about what a screwed up year 2020 was — on many levels. (Bloomberg) -- To some short sellers, GSX Techedu Inc. is an “almost completely empty box,” with numbers that are too good to be true. They were on CNBC this morning, officially stating they have a short position with XL. Short Seller Muddy Waters Ends Busy Year With NMC Share Plunge By . Muddy Waters is one of the most active short sellers, according to Activist Insight. Muddy Waters was the third short-seller to lambaste the company, but the stock barely budged. A Hong Kong-based spokeswoman at Credit Suisse declined to comment. Terry Weng of Blue Lotus Capital is among the optimists, saying short sellers misunderstand the online big-class business. This copy is for your personal, non-commercial use only. Citron Research followed in April, accusing the company of overstating revenue by as much as 70%. Key Words Muddy Waters short seller trashes Tesla fans as easily duped by Elon Musk Published: Jan. 15, 2019 at 9:43 a.m. Write to Evie Liu at evie.liu@barrons.com. Wolfpack estimates that iQIYI inflated its 2019 revenue by approximately 8 billion to 13 billion Chinese yuan ($1.14 billion to $1.85 billion), or 27% to 44%, relative to the actual levels. Disclosed short position is dated 2020-03-20 and translates to about €6m at a market cap of €1.2b. (BIDU), which owns roughly half of iQIYI, saw its stock dip 1.1%. Despite their recent swoon, the ADRs are still up 37% this year through Wednesday, outperforming peers New Oriental Education & Technology Group Inc. and TAL Education Group. He joined New Oriental Education in 1999, eventually becoming executive president before leaving to start GSX in 2014. Wolfpack Research was launched last year by veteran activist short seller Dan David, mainly focusing on exposing fraud and corporate wrongdoing at public companies around the globe. Copyright ©2021 Dow Jones & Company, Inc. All Rights Reserved. Carson Block, Chief Investment Officer of Muddy Waters Capital LLC and famed short seller speaks to Bloomberg's Tracy Alloway at the Bloomberg … GSX is an after-school tutoring platform whose American depositary receipts began trading last June and had more than quadrupled earlier this year, boosting the fortune of billionaire chairman and founder Larry Chen. People familiar with the matter have said it is now reviewing how it lends to billionaire clients at the international wealth-management division. Since the Luckin scandal, billionaire Zhang Bangxin’s TAL disclosed that an employee had wrongly inflated sales, and more short sellers have targeted stocks from the Asian nation trading in the U.S. See all articles by Zhe Peng ... We found evidence of short squeeze in the short selling attacks before Luckin's confession, pointing to non-negligible shorting selling risks. An error has occurred, please try again later. The report came as China’s The result is that it can simultaneously inflate its revenues and burn off fake cash, the report said. The downfall of Luckin was triggered by short seller Carson Block of Muddy Waters that published detailed allegations on January 31, 2020, of massive … Luckin Coffee Muddy Waters … The company lost 10.3 billion yuan in 2019, 9.1 billion yuan in 2018, and 3.7 billion yuan in 2017, according to FactSet data. iQIYI hasn’t made a profit since its foundation 10 years ago, according to Wolfpack. He later obtained a master’s degree and doctorate in economics from Renmin University of China, and completed a general manager program at Harvard Business School in 2005, a company filing shows. For the best Barrons.com experience, please update to a modern browser. Show full articles without "Continue Reading" button for {0} hours. Xiaomi TV, and Ctrip—often nearly free through “buy one, get one” or “membership benefit” deals, as a result of using the other services, it said. ; Muddy Waters describes the company as "middle of the fairway SPAC garbage" in its new report. Trading in Luckin shares was halted on Tuesday. Rick Wilking/Reuters. iQIYI is overstating its user numbers by approximately 42% to 60%, says Wolfpack, and also has inflated its expenses—the prices it pays for content, other assets, and acquisitions—in order to “burn off fake cash to hide the fraud from its auditor and investors.”. 34 Pages Posted: 13 Nov 2020. Each time Muddy Waters exposed alleged wrongdoing at a Chinese company, the usual response is that the short seller doesn’t understand the business, Chief Executive Officer Carson Block wrote in an email, maintaining GSX is deceiving investors.
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