iQIYI, Inc. (IQ) Accused of Misleading Shareholders
According to the complaint for alleged violations of the Securities Exchange Act of 1934 between March 29, 2018 and April 7, 2020, in March 2018, iQIYI held its initial public offering (“IPO”) offering approximately 125 million ADSs for $18 per share and raising approximately $2.25 billion in proceeds. In its Registration Statement, iQIYI touted impressive online revenue growth from 2015 to 2017 due to “increased attractiveness and efficiency of advertising services.” Following the IPO, iQIYI continuously touted its growing number of paying subscribing members as well as its increasing advertising services revenue. Despite auspicious financials, on April 7, 2020, Wolfpack Research released a report revealing iQIYI had misled investors and failed to disclose in its Registration Statement that: (i) iQIYI overstated its user numbers; (ii) iQIYI inflated its revenues; (iii) iQIYI inflated its expenses and prices of assets to conceal its revenue inflation; and (iv) iQIYI’s misleading financial reporting created the appearance of a cash generative company. The report concluded ” was committing fraud well before its IPO in 2018 and has continued to do so ever since.” On this news, ADSs of iQIYI fell almost 6% to close at $16.51 per ADS.