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China's iQIYI: Internal Report Refutes Short Seller's Allegations

China's iQIYI said an internal review refuted allegations from a short seller. And it said it would continue to cooperate with an SEC inquiry.

Shares of iQIYI  (IQ) - Get iQIYI, Inc. Sponsored ADR Class A Report rose Monday after the Chinese online entertainment company said an internal review had refuted a short seller's allegations that it inflated revenue and user numbers.

It also said it will continue to cooperate with a Securities and Exchange Commission inquiry.

Iqiyi American depositary receipts recently traded at $23.49, up 2.8%. The stock has climbed 11% year to date.

In April, short seller Wolfpack Research accused iQIYI, which competes with Tencent  (TCEHY) , of inflating its 2019 revenue by some $1.13 billion to $1.98 billion, or between 27% and 44%.

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Iqiyi, which is 56% owned by Chinese internet titan Baidu  (BIDU) - Get Baidu, Inc. Sponsored ADR Class A Report, also inflated its expenses, the prices it pays for content, acquisitions and other line items to burn off fake cash positions and hide the fraud from investors and auditors, Wolfpack said.

The SEC requested financial and operating records dating to Jan. 1, 2018, as part of a probe of issues raised by the short seller.

“The SEC's Division of Enforcement is seeking the production of certain financial and operating records dating from Jan. 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,” iQIYI said in an April statement.

As for now, “the company is unable to predict the duration, outcome or impact of the SEC investigation,” it said.

Baidu ADRs recently traded at $125.44, up 0.7%. They have gained 5% so far this year. Tencent ADRs were 1.4% higher at $68.14.