Citron issued conclusive evidences of GSX’s overstatement of its P&L

1 May, 2020 03:14
source: Singularity Financial

Singularity Financial Hong Kong April 30, 2020 – by David Lee

On April 30, Citron Research issued an updated short report against Chinese education company GSX Techedu (NYSE: GSX), stating that it has discovered “conclusive evidence of significant overstatement of revenues and profits through the use of multiple undisclosed related parties at GSX Techedu (NYSE: GSX)”.

Most importantly, the same report is simultaneously presented to the following regulatory bodies and representatives:
• U.S. Securities Exchange Commission (SEC)
• SEC Chairman Jay Clayton
• SEC Chief Accountant Sagar Teotia
• SEC Division of Corporation Finance Director William Hinman
• SEC Division of Investment Management Director Dalia Blass
• Public Company Accounting Oversight Board (PCAOB)
• PCAOB Chairman William Duhnke III
• China Securities Regulatory Commission (CSRC)
• State Administration for Market Regulation (SAMR)

Last month, Citron Research published a short report on GSX Techedu raising a red flag that GSX was reporting growth and margins way out of line with competitors all the while not being acknowledged for these alleged achievements in either the: Chinese Media, government databases, or third-party analytics.

“What has happened in the past three weeks has been nothing short of remarkable. Since the publication of the initial report, we have received four to five correspondences a day from either former employees, competitors, or most likely investors from mainland China who have
provided us evidence” of:
• Multiple undisclosed related party transactions
• Fake enrollment figures (i.e., brushing of students)
• Misappropriation of funds by teachers

Citron hints many times in its report that, the reason GSX is able to move forward with its ongoing fraudulent conducts was partly associated with its long-term auditor partner Deloitte Touche Tohmatsu, who has gone largely ignored the red flags.

Citron’s report calls for regulators’ vigilant in the oversight of Chinese online education companies with outsized metrics during the abuses of brushing. “Brushing can be prevalent in online education because unlike ecommerce you do not deliver a physical product that needs to be shipped and stored.”

In its report, Citron also discloses a conversation that was had by a leading China-focused research firm with one of the main “brushers” for GSX.  “We have the actual recording and will be providing this to you away from this report.” according to Citron’s report.

To view the complete Citron report and gain a full access of the conversation recording, please click the link here.