Study of GSX
- 10/1/2020 – GSX collapsed today, but unfortunately my call option expired one day before. I have a good idea but very bad strategy. Short term timing is so bad.
GSX Techedu’s stock plunges, after Credit Suisse analyst turns bearish, slashes price target
- 09/02/2020 – the SEC probe is finally coming
SEC Probes China’s GSX Techedu After Short Sellers’ Pleas
Short sellers accuse New York-listed tutoring company of inflating its sales
GSX Techedu Inc., GSX -13.75% a Chinese after-school tutoring company, said it is being investigated by the U.S. Securities and Exchange Commission after short sellers accused the Beijing-based firm of inflating its sales.
The New York-listed company disclosed the probe with its second-quarter results, which were released early Wednesday.
- 08/06/2020 – can this new rule hurt GSX eventually? Chinese firms that are already listed on the New York Stock Exchange and Nasdaq Stock Market would have to comply by 2022—or give up their listings on those exchanges. The administration’s plan would require rule-making by the SEC, which ultimately oversees the audits of companies whose shares are traded in the U.S.
White House Seeks Crackdown on U.S.-Listed Chinese Firms
Proposal would have companies lose their listings if they don’t comply with U.S. auditing requirement
WASHINGTON—Chinese companies with shares traded on U.S. stock exchanges would be forced to give up their listings unless they comply with American audit requirements under a plan recommended Thursday by the Trump administration.
The proposal addresses a long-simmering dispute over U.S. regulators’ inability to inspect the financial audits of Chinese companies that sell shares in U.S. markets. It follows bipartisan legislation that passed the Senate in May, which would give Chinese companies that don’t comply three years to delist in the U.S. and find a new exchange.
Under the plan, Chinese firms that are already listed on the New York Stock Exchange and Nasdaq Stock Market would have to comply by 2022—or give up their listings on those exchanges.
To comply, Chinese auditors would have to share their work papers with the Public Company Accounting Oversight Board, a specialized audit regulator overseen by the U.S. government. Chinese firms that aren’t yet public—but which plan to do an initial public offering in the U.S.—would have to comply before they can go public on NYSE or Nasdaq, and wouldn’t get until 2022 to follow the rules, according to senior Treasury Department and Securities and Exchange Commission officials.
“These recommendations are consistent with bipartisan congressional legislation and are centered on the importance of a level playing field,” SEC Chairman Jay Clayton said.
The proposal follows a number of steps by the administration to put pressure on Beijing.
Last week, regulators told the Chinese owner of TikTok, a popular video app, that its ownership poses a national-security threat, exacerbating the tense relationship between the world’s two largest economies.
U.S. officials say they are concerned that TikTok, owned by Beijing-based ByteDance Ltd., could pass to China’s authoritarian government any data it collects from Americans streaming videos. TikTok has said it would never do so.
TikTok officials are in talks to sell its U.S. operations to Microsoft Corp. Executives are trying to complete negotiations by Sept. 15.
The U.S. last month ordered China to shut its consulate in Houston, with officials accusing it and other Chinese diplomatic missions of economic espionage and visa fraud. China retaliated by ordering the closure of the American consulate in Chengdu.
The plan announced Thursday is similar to legislation that passed the Senate in May sponsored by Sens. John Kennedy (R., La.) and Chris Van Hollen (D., Md.). Similar legislation has passed the House as an amendment to a defense-spending bill, said Rep. Brad Sherman (D., Calif.), who added in an interview Thursday: “This is not an anti-China provision. This is an investor-protection provision.”
The administration’s plan would require rule-making by the SEC, which ultimately oversees the audits of companies whose shares are traded in the U.S.
The Senate bill, which was passed unanimously, addresses investor-protection concerns that have lingered for years but which gained political traction as tension between the U.S. and China grew. Chinese companies such as Alibaba Group Holding Ltd. and Baidu Inc. have together raised tens of billions of dollars by tapping into U.S. capital markets.
Some significant accounting frauds involving Chinese companies have exposed the gap in U.S. audit oversight. Luckin Coffee Inc., an upstart rival to Starbucks Corp. in China, is the latest example.
Luckin said employees fabricated more than $300 million in sales, only 11 months after its initial public offering on Nasdaq. The firm has since been delisted. It later fired its chief executive officer and chief operating officer and Chinese regulators are preparing to take punitive action against the once-hot startup.
It isn’t clear how the Chinese companies and auditors would be able to comply with the U.S. demand. China has implemented a law that prevents its citizens and companies from complying with overseas securities regulators without the permission of its own market supervisor and various components of the Chinese government.
One way around that hurdle, under the Trump administration’s plan, would effectively involve a Chinese company getting a second audit from an accounting firm whose records can be inspected by the accounting oversight board.
Under such an approach, a U.S. accounting firm could conduct a “co-audit” of a Chinese company’s financial statements alongside the audit done by its Chinese affiliate. The board would theoretically have access to the work papers of the U.S. accounting firm, which would assume liability for any shoddy or inadequate work, officials said.
Co-audits have been performed in other countries, senior SEC officials said.
An NYSE spokesman said the exchange’s listing standards “have long represented the industry’s gold standard because they balance investor protections with providing the broadest possible range of public-market investments, and any new regulations should aim to maintain that balance.”
A spokesman for Nasdaq didn’t immediately reply to requests for comment.
The accounting board and the SEC have long tried to negotiate with China for access to audit records. Those efforts have largely failed, while the SEC was historically unwilling to kick the companies off the NYSE or Nasdaq markets.
- 07/13/2020 – is the clamp down coming? good to put GSX again?
Exclusive: Trump administration to soon end audit deal underpinning Chinese listings in U.S. – official
- 06/09/2020 – Trump wants to delist Chinese companies, Wall Street might oppose
Trump wants to delist Chinese companies from U.S. exchanges. That could hurt Wall Street
- The U.S. Senate last month passed a bill that could essentially ban many Chinese companies from listing their shares on U.S. exchanges, or raising money from American investors.
- “I think in terms of protecting American investors, this bill if it becomes law, could backfire,” warned Jesse Fried, a professor of law at the Harvard Law School.
- Fried said, however, there’s “good reason” to think the bill won’t get passed, predicting that Wall Street will oppose it.
- While Chinese companies have traditionally preferred to list in the U.S. due to the prestige, Fried said that Beijing isn’t “particularly interested” in keeping it that way.
- 06/02/2020 – another report on fraud GSX shows that it has inflated 9X revenue and student counts. Yet the stock jumps by 10% today. Good time to PUT?
Update: GSX Techedu Inc. – Grizzly Research Presents Smoking Gun Evidence of Fraud
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The company gave multiple conflicting responses to allegations leveled by us, and later by other short sellers. In the meantime, we procured what we deem further definitive evidence that demonstrates GSX’s false and misleading statements.
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We have continued our research and analysis, and have discovered what we believe is comprehensive first-hand data that originates from GSX themselves that shows the real enrollment count of students, as opposed to calculations that derive this number. In our opinion, this amounts to definitive proof of GSX’s fraud, and shows that GSX publicly claimed student enrollment count and revenue are inflated by approximately 900%.
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Our report contains technical instructions and a video guide showing how anyone can replicate our findings. We urge investors and regulators to look into this matter in immediately because GSX will likely try to cover up its tracks now that we have exposed the methodology of its fraud.
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We have also reviewed detailed evidence that confirms that GSX appears to be conducting illegal marketing activities on a massive scale. We believe the company’s core marketing strategy is built around identity theft.
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We obtained records from a third party vendor in China that alleges that it was paid by GSX to supply GSX with fake WeChat IDs and national IDs. We confirmed the authenticity of these documents, including wire transfers between GSX and the vendor.
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Our analysis of this data suggests that GSX bought over 200,000 fake WeChat Accounts. We sampled 3,000 accounts, most of which we could identify as GSX teachers/tutors. These practices are illegal, we expect Chinese regulators to step in soon.
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We cover numerous other wrongdoings in this report. We believe that GSX will not be able to credibly defend itself against the numerous allegations that we now confirmed with definitive proof. Other short sellers have started to wise up on GSX’s fraudulent behavior, and we believe the market and regulators are soon to follow.
- 05/27/2020 – Awaiting House to pass the delisting bill
U.S. takes aim at China with stock delisting bill
In a move aimed at reining in accounting improprieties of Chinese-based companies listed on the U.S. Stock Exchange, legislators from both parties are pushing a bill through Congress that would force foreign-based companies to submit to oversight by the U.S. Public Company Accounting Oversight Board (PCAOB).
The legislation (S.945), which proposes to amend a section of the Sarbanes-Oxley Act of 2002 (15 U.S.C. 7214), unanimously passed the U.S. Senate by voice vote May 20 and is now before the House. In a sign of bipartisan support, a companion bill, filed by U.S. Rep. Brad Sherman (D-Calif.), is also awaiting action in the House.
According to the Senate legislation, called the “Holding Foreign Companies Accountable Act,” a foreign-owned company that refused to comply with the PCAOB’s audit requirements for three consecutive years could be delisted. Foreign-owned companies would also have to certify they are not owned or controlled by a foreign government.
The bill clearly targets Chinese companies. For years, the Chinese government has shielded Chinese companies listed on U.S. stock exchanges from the same audit and accounting scrutiny required of U.S. companies.
“It’s asinine that we’re giving Chinese companies the opportunity to exploit hardworking Americans—people who put their retirement and college savings in our exchanges—because we don’t insist on examining their books,” Sen. John Kennedy (R-La.), who sponsored the Senate bill with Sen. Chris Van Hollen (D-Md.), said in a statement.
U.S. legislators in both parties say Chinese companies—with Luckin Coffee and video streaming company iQIYI among the most recently scrutinized—have swindled American investors of millions of dollars by improperly inflating earnings and profits. The companies are not called to account because their books are shielded from audit scrutiny by foreign government regulators in China and Hong Kong, legislators say.
According to the PCAOB, audit firms in China and Hong Kong issued audit reports for 188 public companies in 2019, with a combined global market capitalization (U.S. and non-U.S. exchanges) of approximately $1.9 trillion. Some of the companies potentially affected include Alibaba Group and Baidu, and future listing plans of major private Chinese corporations could also be prevented.
The positions taken by regulators in China and Hong Kong “impair our ability to conduct inspections and investigations of the audits of public companies with China-based operations,” the PCAOB said, affecting two specific types of audit work: audit work performed by the principal, signing author, certifying that the audit complied with PCAOB standards; and referred work, which is signed and issued by a separate firm and made public through the PCAOB’s online database, AuditorSearch.
Should the bill become law, it would likely be at least three years before any foreign-owned company was delisted.
In a statement, the China Securities Regulatory Commission (CSRC) accused the bill’s authors of “politicizing securities regulation.”
“The proposed Act, if enacted, would certainly harm the interests of both China and the US,” the CSRC said. “While impeding foreign issuers from listing in the US, it would also undermine global investors’ confidence in the US capital markets and weaken the US markets’ international standing. Potential issuers of high quality represent valuable resources that attract competitions among capital markets around the globe. We believe international investors will make their wise choices that best suit their own interests.”
Peter Cohan, a lecturer in strategy and entrepreneurship at Babson College in Wellesley, Mass., said he did not think any Chinese companies will comply with the U.S. accounting standards so they can maintain their listing on the U.S. exchanges. Doing so would require “a huge amount of restating of financial statements and creation of auditing procedures—probably for U.S. auditing firms,” he noted.
If the bill becomes law, Cohan predicts Chinese firms would move to stock exchanges in countries that “do not require them to change their reporting processes.” Two likely landing spots are Hong Kong and London, he said.
- 05/27/2020 – class action lawsuit for GSX. June 16, 2020 lead plaintiff deadline
Rosen Law Firm, a global investor rights law firm, reminds purchasers of the securities of GSX Techedu Inc. (NYSE: GSX) between June 6, 2019, and April 13, 2020, inclusive (the “Class Period”), of the important June 16, 2020 lead plaintiff deadline in the securities class action commenced by the firm. The lawsuit seeks to recover damages for GSX investors under the federal securities laws.
- 05/27/2020 – Both Citron research and Muddy Waters short GSX with strong reasonings
GSX-Techedu-The-Most-Blatant-Chinese-Stock-Fraud-Since-2011-ver2
GSX’s weak refutes on MW allegation
GSX also denies CR’s allegation
- 05/27/2020 – upcoming potential delisting from NYSE might kill GSX given its own fraud accounting. Good to buy puts to hedge my portfolio
These 4 Chinese Stocks Are Too Risky to Own
Luckin Coffee and three other Chinese stocks could be in the blast zone of newly proposed regulations.
GSX Techedu (NYSE:GSX), an online education platform in China, initially seemed like a dream growth stock. Its revenue rose 432% last year as its adjusted net income surged 617%. It also claimed the COVID-19 crisis generated fresh tailwinds as more students enrolled in online courses.
However, several prolific short sellers recently called GSX the next Luckin Coffee, claiming it fabricated sales and student figures, padded its growth with promotional offers, and even populated classrooms with chat bots to maintain that illusion.
GSX has denied those allegations, but Muddy Waters — the firm that shorted Luckin before its admission of guilt — recently disclosed a big short position in the stock. GSX could eventually be absolved, but these accusations make the stock too risky to own in this unforgiving market.
- 05/22/2020 – need to be cautious before I buy puts for GSX because there are lots of resistance on delisting
Read This Before Selling All Your U.S.-Listed Chinese Stocks
Could a new bill making its way through Congress spark a mass exodus of Chinese stocks from U.S. exchanges?
Voluntary delistings could get messy
If Chinese companies delist their stocks, the new Senate bill will bar them from simply changing their symbols and moving to the OTC market — where delisted U.S. stocks usually end up.
Instead, these companies will likely need to make a tender offer for their outstanding U.S. shares, take themselves private, then launch a fresh IPO on another exchange. Chinese companies like Qihoo 360, Mindray Medical, and Wuxi Pharmatech all initially raised cash through U.S. IPOs, delisted their shares by going private, then filed new IPOs in Chinese markets at several times their U.S. valuations.
This outcome could hurt U.S. investors, since a tender offer could significantly undervalue the company. Many Chinese companies, including JD and Alibaba, employ a dual-class share system that grants the management an outsized majority stake in the company — so any foreign resistance to a lowball go-private offer could be futile.
It could also be messy, since it requires lots of cash to buy out existing investors. Instead, it’s easier for besieged Chinese companies to simply leave U.S. exchanges and launch secondary listings in Hong Kong to raise fresh capital.
Expect resistance from U.S. companies and funds
The proposed crackdown on Chinese stocks will likely spark fierce protests from American companies, funds, and exchanges.
For example, Alphabet‘s Google and Walmart both own big stakes in JD.com. Investment juggernauts Blackrock and Vanguard are among Alibaba and Baidu’s top shareholders. Over 150 Chinese companies trade on U.S. exchanges, and their listing fees likely generate significant revenues for the New York Stock Exchange and NASDAQ.
A mass exodus of Chinese stocks from U.S. exchanges could hurt all those companies and their investors. Therefore, it wouldn’t be surprising if the U.S. government significantly tones down the bill before it’s passed into law.
Don’t panic and sell all your Chinese stocks
Investors should keep tabs on the bill’s progress, but they shouldn’t expect major companies like Baidu, Alibaba, or JD to abruptly delist their shares. Baidu CEO Robin Li already shot down rumors that the company would delist its shares in the U.S., but left the door open for a secondary listing in Hong Kong.
- 05/21/2020 – Bill could delist Chinese companies passed in Senate on May 20, and it is posed to be passed by House. and finally signed by DJT
Momentum is building for the Democratic-run House to approve sweeping legislation that could ultimately bar many Chinese companies from listing their shares on U.S. stock exchanges or otherwise raising money from American investors.
Democratic Rep. Brad Sherman of California introduced a House version of the Holding Foreign Companies Accountable Act Wednesday night, after the bill passed the Republican-controlled Senate earlier in the day with unanimous support.
The bill would require that foreign companies let the Public Company Accounting Oversight Board oversee the auditing of their financial records if they want to raise money by selling stocks or bonds to the American public. All U.S. companies and most foreign firms already work with the PCAOB in this way, but Chinese firms do not.
After passing unanimously in the U.S. Senate on May 20, the Holding Foreign Companies Accountable Act is heading for the House of Representatives, and President Donald Trump is expected to sign it into law.
