Shares of Chinese streaming service iQiyi plunged into overtime trading in the US after announcing that the Insurance and Exchange Commission (SEC) has launched an investigation into the company.
The SEC investigation was spurred on by an April report by Wolfpack Research, which describes itself as an “activity firm for proper research and care”. In that report, Wolfpack accused iQiyi of cheating and inflating his numbers.
iQiyi said the SEC is “seeking the production of several financial and operational records dating from 1January 2018, as well as documents related to certain acquisitions and investments that have been identified in a report released by the short-selling retailer Wolfpack Research in April of 2020. “
Netflix-style broadcasting giant also said it has “hired professional advisers to do an internal review of some of the key allegations” in the Wolfpack report.
Wolfpack Research claimed that iQiyi boosted its 2019 revenue by nearly 8 billion yuan ($ 1.13 billion) to 13 billion yuan ($ 1.98 billion) – or between 27% and 44%. Wolfpack also claimed that the streaming company overloaded users’ numbers and expenses.
Shares of iQiyi listed by Nasdaq fell over 18% in extended trading but saw some of those losses. The company was down 12.36% at the end of the post-trade period.
Yu Gong (center), Founder and CEO of China-based iQiyi (IQ), Nasdaq MarketSite Opening Ring in Times Square with employees and investors celebrating its initial public offering (IPO) on March 29, 2018 in New York City.
The SEC investigation into iQiyi comes amid growing scrutiny of Chinese companies listed in the US, following the Luckin coffee scandal earlier this year.
Coffee Luckin China agreed to fabricate sales numbers for 2019. The company was subsequently removed from the Nasdaq in June.
In May, the U.S. Senate passed a bill that would increase audit control over Chinese firms listed on Wall Street, threatening to remove the listing if they do not comply.
In 2018, iQiyi was thrown by Chinese search giant Baidu at a U.S. IPO that raised over $ 2.2 billion. Baidu, which is also listed in the US, has a majority stake in iQiyi. As Baidu faced rising competition in China – in key products such as research and advertising – iQiyi became an important part of its growth prospects.
In the second quarter, iQiyi membership revenue rose 19% year-on-year, while online advertising revenue fell 28% year-on-year, according to Baidu earnings report.
Shares of Baidu fell 7% in extended-hour trading on Thursday as a result of the SEC probe in iQiyi.