Investigation of Baidu, Inc.
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Baidu, Inc. (BIDU) Accused of Misleading Shareholders
In 2015, Baidu, in its filings with the Securities and Exchange Commission (“SEC”), reported, “In November, we obtained a controlling interest in Qiyi.com, Inc., or iQiyi, a prior equity method investee, and have since consolidated its financial results into its consolidated financial statements.” Thereafter, Baidu continued to identify iQiIYI’s revenues and contribution to Baidu’s financials in its filings with the SEC.
On April 7, 2020, Wolfpack Research released a report revealing iQIYI had misled investors and failed to disclose in its Registration Statement that iQIYI had: (i) overstated its user numbers; (ii) inflated its revenues; (iii) inflated its expenses and prices of assets to conceal its revenue inflation; and (iv) created misleading financial reporting to appear as a cash generative company. The report concluded “[iQIYI] was committing fraud well before its IPO in 2018 and has continued to do so ever since.” Then, on August 13, 2020, iQIYI issued a press release announcing its 2Q financial results, which identified that the SEC was investigating the company as a result of the Wolfpack Report and that the company had started its own internal investigation. On this news, Baidu’s ADSs fell 6%, to close at $116.74 per ADS on August 14, 2020.