China’s streaming platform iQiyi Inc. (Nasdaq: IQ) is in the green this week after releasing a statement again denying the fraud allegations from Wolfpack Research.
While its stock ended Thursday nearly 3% lower, overall, iQiyi jumped from trading at $22.85 five days ago to the peak of $24.50 per share. That was after it announced on Monday that its internal investigation failed to find financial fraud in its books.
Wolfpack and Muddy Waters alleged in an April report that iQiyi had significantly inflated its users and revenue as early as before its 2018 IPO and continued to do so after it went public. Wolfpack titled its report “IQyi: The Netflix of China? Good Luckin,” drawing a parallel to scandalously delisted and beheaded Luckin Coffee (OTC: LKNCY).
Citing in-person surveys of more than 1,500 people and Chinese credit reports of iQiyi’s VIEs and WFOEs, the short seller claimed that the Chinese entertainment platform overstated its user numbers and inflated revenues in its SEC filings by as much as 261.7% pre-IPO. Further, in 2019, Wolfpack estimated that iQiyi inflated revenues by 27% to 44%.
At the time, iQiyi denied the allegations, saying Wolfpack’s report "contains numerous errors, unsubstantiated statements and misleading conclusions."
Nevertheless, the Securities and Exchange Commission launched a probe into iQiyi and Baidu (Nasdaq: BIDU), its parent company. Investigations by law firms feeling for class action suits on behalf of the shareholders also ensued.
This week, iQiyi restated its denial, saying it "substantially completed" its internal review and "did not uncover any evidence that would substantiate the allegations,” as cited by MarketWatch.
The company added that it will continue to cooperate with the SEC on the probe. Wolfpack has not made a counterstatement.