Shares of Chinese streaming service iQiyi (NASDAQ:IQ) plunged in after-hours trade in the U.S. after it announced the Securities and Exchange Commission (SEC) has launched a probe into the company.
The SEC investigation was prompted by a report in April from Wolfpack Research, which describes itself as an "activist research and due-diligence firm." In that report, Wolfpack accused iQiyi of fraud and inflating its numbers.
iQiyi said the SEC is "seeking the production of certain financial and operating records dating from January 1, 2018, as well as documents related to certain acquisitions and investments that were identified in a report issued by short-seller firm Wolfpack Research in April 2020."
The Netflix-style (NASDAQ:NFLX) streaming giant also said it has “engaged professional advisers to conduct an internal review into certain of the key allegations” in Wolfpack’s report.
Wolfpack Research alleged iQiyi inflated its 2019 revenue by approximately eight billion yuan ($1.13 billion U.S.) to 13 billion yuan ($1.98 billion U.S.) — or between 27% to 44%. Wolfpack also claimed the streaming company overstated user numbers and expenses.
Shares of NASDAQ-listed iQiyi fell over 18% in extended trade but pared some of those losses. They opened Friday sharply down $2.55, or 11.7%, to $19.14.
