Beijing-based education company GSX Techedu Inc (跟誰學) said it is being investigated by the US Securities and Exchange Commission (SEC), the latest case as US-listed Chinese companies face greater scrutiny on accounting issues amid rising tensions between the two countries.
The SEC’s Division of Enforcement contacted GSX asking it to produce financial and operating records dating from Jan. 1, 2017, GSX said in its second-quarter earnings statement on Wednesday.
GSX said it is cooperating with the SEC.
The firm said that its audit committee already engaged third-party advisers to conduct an internal investigation into allegations about its finances made by short-sellers, including Muddy Waters and Citron Research, earlier this year.
GSX shares fell 12 percent in US trading, the most in almost a month.
The online education company, which provides after-school tutoring services, is the latest case being investigated as US President Donald Trump’s administration threatens to delist Chinese firms that fail to meet US audit standards. The issue has gained urgency amid rising geopolitical tensions.
An accounting scandal at Luckin Coffee Inc (瑞幸咖啡) in April also shined a spotlight on the risks of Chinese companies listed in the US. Following an internal investigation, Luckin disclosed that fabricated transactions had inflated its revenue last year by about US$300 million.
A high-powered group of US regulators last month said that stock exchanges should set new rules that could trigger the delisting of Chinese companies, following mounting concerns that investors are being exposed to frauds.
The President’s Working Group on Financial Markets said that firms must grant US regulators access to their audit work papers in order to trade on a US exchange.
The recommendations target a problem that has vexed US regulators for more than a decade: China’s refusal to allow inspectors from the Public Company Accounting Oversight Board to review audits of Alibaba Group Holding Ltd (阿里巴巴), Baidu Inc (百度) and other firms that trade on US markets.
Chinese regulators last month said that they would be open to the idea of joint audits.
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