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Apr. 15 (NBD) -- Chinese online education company GSX Techedu Inc ("GSX", NYSE: GSX) on Wednesday refuted Citron Research's report over fraud, saying the short seller's claims are full of "subjective malice" and intentionally misleading.

Citron Research, led by activist short seller Andrew Left, on Tuesday published the report which called GSX the "the most blatant Chinese stock fraud since 2011", as it fabricated up to 70 percent of revenues in 2019.

The short seller called on GSX to immediately halt trading and start an internal investigation, adding that a fuller set of its on-the-ground findings will be published soon. 

Shares of GSX dived by as much as 9.11 percent after the report was published, but rebounded to close 0.64 percent lower Tuesday.

The online investment newsletter tracked over 20 percent of GSX's total available paid K-12 programs in Q1 2020, and estimated that revenues from all these programs in the quarter would be 316 million yuan, which amounts to a 60 percent discrepancy with reported K-12 Q4 2019 revenue of 773 million yuan.

Considering that GSX's growth rates for the past four quarters, Citron Research said it believes that revenue overstatement for 2019 could be as much as 70 percent. Counting classes more than once could be one way to inflate revenues.

GSX responded that Citron Research was "incredibly ignorant" of the company's business, as a majority of its revenues in the K-12 sector came from Gaotu 100, one of a cluster of education brands owned by GSX. Founder and CEO of GSX Chen Xiangdong said on social media that the "shameless report" left the company "speechless".

GSX also questioned the integrity of Citron Research which cited Luckin Coffee in the report as an example of fraud, but defended the coffee startup in February when Muddy Waters Research published a report on Luckin Coffee's fabrications. 

The Citron report marks the second shorting targeting GSX in less than two months. On February 25, Grizzly Research accused GSX of overstating 2018 profits by 74.6 percent. At the time GSX said there was no need to comment on such a "logically incoherent" report.

But after Luckin Coffee and TAL Education Group, another US-listed Chinese online education company, revealed their sales fabrications in early April, GSX held two conferences with media and investors on April 8 and 9, saying that a new round of auditing by Deloitte had verified its financials.

Email: gaohan@nbd.com.cn