SEC Begins Checking Chinese Video Service iQiyi
The US Securities and Exchange Commission (SEC) has begun checking the Chinese subscription video streaming service iQiyi, an analog of Netflix. The inspection was reported by the Chinese company itself. In this statement, the ADRs of Nasdaq-listed companies fell by 13%.
The securities of Baidu, iQiyi's main shareholder, fell by 5.6% in New York.
In April, analysts at Wolfpack Research questioned iQiyi's data on the number of its customers, sales, expenses, and transactions. On August 13, iQiyi reported that the SEC requested information from the company about its financial and operating activities for the period from January 2018, as well as documents related to acquisitions and investments that Wolfpack drew attention to.
iQiyi added that it engaged professional consultants to conduct an internal audit, which will examine all aspects mentioned by Wolfpack.
IQiyi's financial Director Wang Xiaodong told investors that the request from the US authorities came "a couple of weeks" after the Wolfpack report appeared. However, the Chinese company did not mention this in May, when it published quarterly reports, writes the Wall Street Journal.
In April, iQiyi said the company is committed to high standards of governance and internal control, noting that the Wolfpack report contains "several errors, unconfirmed statements, and incorrect conclusions and interpretations."
Us regulators have begun to pay more attention to Chinese companies listed in the US, after the scandal with Luckin Coffee - a competitor of Starbucks in China. Luckin Coffee, which last year held one of the largest IPOs on Nasdaq, in April this year admitted to overstating sales data, after which, Nasdaq announced the delisting of its shares.
The reluctance of Chinese companies to give American regulators access to their audit documentation has become a serious problem. Last week, US President Donald Trump proposed a plan under which Chinese companies will have to bring their operations in line with us audit requirements by 2022 or refuse to list in the US.