China’s Huazhu Group (Nasdaq: HTHT) today announced that the company's audit committee has completed the internal investigation into the allegations raised in short seller reports issued by Bonitas Research and found no evidence of fraud.
The audit team, with the assistance of Cleary Gottlieb Steen & Hamilton LLP and FTI Consulting, Inc., did not identify any material misstatements with respect to the company’s 2019 20-F or its prospectuses issued in September 2020 in connection with its global offering.
“We reiterate our commitment to maintaining the highest standards of corporate governance, as well as transparent and timely disclosure in compliance with the applicable rules and regulations of the United States Securities and Exchange Commission, the Nasdaq Global Select Market and The Stock Exchange of Hong Kong Limited,” said Qi Ji, Chief Executive Officer of the company.
“I am positive that our strong business fundamentals will continue to help us build on our hotel network, deliver best lodging experience, and capitalize on opportunities to create long term shareholder value.”
In September, the Texas-based activist short seller, led by Matthew Wiechart, released a set of allegations. These included faking profits, inflating franchise count and net PP&E, understating staff count, concealing operating expenses.
“We believe that Huazhu generated significantly less profit and held significantly less PP&E assets than reported in both its SEC filings and HKEX Global Offering,” Bonitas wrote. “We are short Huazhu because we believe that Huazhu’s actual financial performance justifies a significantly lower stock price.”
In response, Huazhu quickly issued a rebuttal, claiming Bonitas’s report is without merit and that it contains numerous errors, unsubstantiated statements, and misleading conclusions regarding the company’s business and operations.
Huazhu's stock has not been affected by the fraud accusation; shares closed at $61.25 in New York today, up over 7%.