TAL Education Says Found No Evidence of Fraud; Stock Rises 3%
The Chinese education provider said it has completed its internal audit of allegations raised by Muddy Waters and found no evidence of wrongdoing. The company also released its annual report, showing strong growth in revenue and income.
TAL Education Group (NYSE: TAL) issued a statement today saying it completed an internal review of allegations raised by short-seller Muddy Waters and found "no evidence" in their support.
The shares of TAL Education rose more than 3 percent to $38.28 per share in early trading Tuesday.
Muddy Waters Capital LLC released a report earlier this month in which it claimed that the company, a K-12 after-school tutoring provider based in Beijing, has been overstating its profits and falsely reporting business transfers for at least the past two years.
Muddy Waters said it estimated TAL's operating profit was inflated by at least 21.6 percent, pre-tax profit was inflated by at least 39.8 percent, and net income was overstated by at least 43.6 percent in the company's financial reports.
The rest of the report contained the background and financial references describing two allegedly fraudulent business transfers, Beijing Dongfangrenli Science & Commerce Co. Ltd. and Guangzhou One-on-One, from TAL to third companies. Muddy Waters claimed that TAL conducted so-called "asset parking" with the two, falsifying the transfers, as well as reporting wrong timing of investments "to escape auditor and investor scrutiny" and "penciling in" profit from a sale that did not occur.
At the time, TAL Education rebutted the allegations, saying the report contained errors and speculation.
Today, the company said only that its internal audit team concluded the review finding no evidence that would support the claims. Its audit committee of the board of directors, the company said, "reviewed the result of the investigation and concurred with the conclusion that the allegations were baseless."
The company also released its annual report on Tuesday, which showed its revenue for the fiscal year through February grew 60 percent year-over-year to $832.7 million. Net income attributable to shareholders was $198.4 million, a 70 percent increase from a year ago. Earnings per American depositary share were 34 cents.
Muddy Waters said the second part of the report on TAL Education, presumably with more allegations, is forthcoming. The short-seller did not say when it would the release the report, or what information it would contain.
The shares of TAL Education were trading at $38.28 per share, up 3 percent Tuesday morning.
(Source: Thomson Reuters Eikon)