Chinese streaming service Iqiyi under SEC investigation

The probe comes after researchers pointed to alleged overinflation in Iqiyi's earnings data.

A Chinese streaming service that has drawn comparisons to Netflix is under investigation by the Securities and Exchange Commission over certain data points in its financial reporting.

Last week, the SEC said it was investigating complaints by some financial traders that Iqiyi inflated revenue and the number of streaming customers it had.

Those complaints were primarily made by short-sellers who purchased and sold shares in the Nasdaq-listed technology company.

Iqiyi was founded in 2018 by Baidu, one of China’s biggest technology companies. In 2017, the company said it had 500 million monthly active users who spent around 6 billion hours a month consuming content on the site.

In March 2018, the company went public in the United States. Earlier this year, the analyst firm Wolfpack Research accused the streaming company of overstating its revenue numbers and misleading investors on the number of streaming customers it served.

In a statement released shortly after the report went public, an Iqiyi spokesperson denied the allegations, charging Wolfpack Research with issuing a report that “contains numerous errors, unsubstantiated statements and misleading conclusions,” among other things.

“The company emphasizes that it has always been and will remain committed to maintaining high standards of corporate governance and internal control, as well as transparent and timely disclosure in compliance with the applicable rules and regulations of the Securities and Exchange Commission and the Nasdaq Global Select Market,” Iqiyi said in a press release.

Last week, Bloomberg reported federal investigators were auditing the Chinese streamer’s financials largely based on the Wolfpack Research report.

“These professional advisers have been examining the company’s books and records and undertaking testing procedures that, in their judgment, are necessary and appropriate to evaluating the key allegations in the Wolfpack Report,” an Iqiyi spokesperson wrote in a statement that was incorporated into the company’s latest financial earnings report.

Last Friday, Wolfpack Research founder Daniel David told CNBC his company stands by their report.

“Prior to their IPO, we believe that they were inflating their deferred revenue, which in this space becomes actual revenue,” David said. “[By] doing that, they could never really catch up to the fraud that they committed, according to our research, prior to their IPO, so they have to do other things like acquisitions and inflation of content and things of that nature.”

The federal probe is the latest carried out by the Trump administration against Chinese technology firms. Earlier this month, President Trump issued an executive order targeting popular services operated by foreign tech firms ByteDance (TikTok) and Tencent (WeChat) over alleged “national security” issues.

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