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Apr. 8 (NBD) – Stock of China's TAL Education Group (TAL, NYSE:TAL) plunged as much as 28.14 percent in after-hours trading Tuesday, after the K-12 after-school tutoring service provider revealed that an employee may have inflated sales by forging contracts. 

TAL said it discovered the wrongdoing during the company's routine internal auditing process, which showed that the employee in question could have conspired with external vendors to inflate the sales of "Light Class", a new online course platform for primary school pupils, by forging contracts and other documentations.

For the fiscal year 2020 ended February 29, 2020, "Light Class" sales accounted for approximately 3-4 percent of the TAL's total estimated revenues, according to the company's statement. 

The employee has been taken into custody after TAL reported to the local police. The company emphasized that it has "zero tolerance of any illegal act", and will comply with rules and regulations of U.S. regulators on disclosure.

U.S. investor rights law firms Labaton Sucharow LLP and Johnson Fistel LLP said seperately Tuesday that they are developing a proprietary investigation of TAL, and are strongly encouraging investors who suffered losses to contact the firms.

The TAL announcement marks the second accounting scandal of U.S.-listed Chinese companies in less than a week. Last Thursday, Starbuck's Chinese challenger Luckin Coffee (NASDAQ: LK) said its chief operating officer fabricated 2019 sales of about 310 million U.S. dollars. 

National Business Daily noticed that both TAL and Luckin Coffee had previously been targeted by short seller Muddy Waters. In 2018, Muddy Waters claimed in a series of reports that TAL inflated pretax profits by at least 28.4 percent and net income by at least 43.6 percent, among other things, between fiscal year 2016 and 2018.

TAL stock plunged by 9.95 percent upon Muddy Waters' first short report released on June 13, 2018, but the following three reports of Muddy Waters didn't affect the share prices of the education company. At the time, TAL said the claims contained "numerous errors", and were "unsupported" and "malicious".

Email: gaohan@nbd.com.cn