TAL Education Group Education Group (TAL.N) said this morning that some "employee misconduct" had been found during a routine internal audit. The company suspected that the problem employee had conspired with external suppliers, falsified contracts and other documents, and mistakenly exaggerated "Light Class" sales figures. The employee has been detained by local police.

At one point, TAL Education Group's shares fell more than 28% in after-hours trading. As of press time, they fell 16.7% to $46.50 per share.

TAL Education Group said that according to the company's regular internal audits, the company suspected that problematic employees conspired with external suppliers, falsified contracts and other documents, and mistakenly exaggerated "Light Class" sales figures. In fiscal year 2020, which ended February 29, 2020, "Light Class" sales accounted for 3 to 4 per cent of the company's total revenue in fiscal 2020.

In response, TAL Education Group responded that the company attaches great importance to the integrity of its business practices and employee ethics, has zero tolerance for violations, and is always committed to maintaining high standards of corporate governance principles. and in accordance with the relevant rules and regulations of the Securities and Exchange of the United States and the New York Stock Exchange to make transparent and timely disclosure.

History of being shorted

It should be pointed out that from June 13 to July 26, 2018, the short seller Muddy Waters (Muddy Waters Research) issued four short selling reports against TAL Education Group: questioning the 2016-2018 fiscal year, TAL Education Group misstated his pre-tax profit of US $153.2 million through two transactions related to Shunshun study abroad and gentle tutoring, reaching a total profit of 28.4% to the acquisition of Libu English. In the Q3 financial report of fiscal year 2018, there is a contradiction between exaggerating the registration number of Peiyou business to the number of registrations disclosed by Peiyou business, average fees and revenue data, and infer that the actual operation of Peiyou business is not ideal.

As a result, TAL Education Group's total market capitalization fell from $24.3 billion on June 12, 2018 to $18.1 billion on July 31, 2018, with a total market capitalization of $6.2 billion lost.

TAL Education Group only made two simple official responses to the short selling, saying that muddy water's allegations included a large number of errors, unconfirmed guesses and malicious interpretations of the incident.

Until November 2018, Zhang Bangxin, chairman and CEO of TAL Education Group, responded in an interview with the Beijing News, "this is the character of our company." We have basically failed to respond to questions about learning and thinking several times in history. In the face of muddy waters shorting, some companies will respond one by one, and both sides spend time in a war of words. Facts speak louder than words, just talk with the data. The issues they challenge are not rigorous, some of the data are extracted and speculated from the media, and the data we disclose are audited.

It is also about the purchase price of Shunshun studying abroad. compared with other cases in the same period, the market has decided that we can only pay that price. And light tutoring, in addition to us, there are IDG and other large funds, how can people cooperate with you to do bad things.

Financial crisis of Chinese stocks?

TAL Education Group is the second Chinese stock company exposed to fraud recently. Last week, LUCKN COFFEE DRC exposed fraud, causing the share price to plummet. LUCKN COFFEE DRC disclosed in an announcement last Thursday that an internal investigation found that his chief operating officer faked sales of about 2.2 billion yuan ($310 million) in 2019.

In addition to TAL Education Group and Ruixing, another Chinese stock company is also in trouble. Earlier on Tuesday, Muddy Waters, a short seller, tweeted, "Muddy Waters is shorting iQiyi because we think it is a hoax." We assisted Wolfpack in conducting a comprehensive study of iQIYI, Inc.. Muddy Waters believes that iQIYI, Inc. fraudulently and substantially exaggerated its users, revenue, acquisition considerations and the value of its "barter" content. "

In this regard, iQIYI, Inc. responded yesterday night that his quoted data and conclusions were seriously untrue and inconsistent with the actual situation. "as a responsible public company, all the financial and operational data we disclose are true and comply with SEC requirements. We strongly deny all false allegations and reserve the right of legal prosecution. "

IQIYI, Inc. 's latest response to the short report said that the report of the research institute Wolfpack has many errors and is misleading.

IQIYI, Inc. 's share price fell 10.5 per cent at one point after the news that the two institutions were short. After iQIYI, Inc. 's response, it erased the decline and rose, down 3.18% in after-hours trading as of press time.