China stock’s new normal: blaming employees for fabricated sales numbers?

8 Apr, 2020 09:30
source: Singularity Financial

Singularity Financial Hong Kong April 8, 2020 – by David Lee

TAL Education (TAL) becomes the latest U.S.-listed China stock to admit sales fraud after Luckin Coffee (LK) last week said it is investigating “fabricated sales” that could total more than $300 million.

On April 7, the company said in a statement that it “discovered irregularities and violations of the Company’s business conduct and internal control policies by an employee in the Company’s newly introduced ‘Light Class’ business,” during a routine audit. The worker has been taken into police custody.

Shares of TAL fell over 28%, to $43.60 in after-hours trading. ADRs of two other Chinese education companies, New Oriental Education and Technology Group Inc.  (EDU) and GSX Techedu Inc. (GSX), also fell sharply in late trading.

Muddy Waters Called China’s TAL Education ‘Fake Finance’ in 2018

Back in July 2018, the China watchdogs over at Muddy Waters have TAL Education in their sites. Here is their latest report. The headline says it all: A Real Business With Fake Financials.

Back then, Carson Block of Muddy Waters told Bloomberg that it was time to short this company. When Block first went live with his short-sell recommendation, TAL issued a statement saying the Muddy Waters team’s report contained “numerous errors, unsupported speculation and malicious interpretations of events.”

“The board, together with its audit committee,” it said, “intends to review the allegations made and will consider appropriate actions to protect the interest of its shareholders.”

TAL is a leading K-12 after-school tutoring services provider in China through three flexible class formats: small classes, personalized premium services, and online courses.

For fiscal 2020, which ended in February, Light Class sales accounted for approximately 3% to 4% of its total estimated revenue. TAL Education reported full-year revenue of $2.56 billion in 2019. Analysts expected the firm to post revenue of $3.37 billion in 2020, according to Zack’s Investment research.

Labaton Sucharow LLP, a leading investor rights law firm, announces it is developing a proprietary investigation concerning potential securities claims on behalf of shareholders of TAL Education Group (TAL) resulting from allegations that TAL may have issued materially misleading business information to the investing public.