Posted by Latha Do NADARAJAN , Year 3 undergrad at the School of Accountancy, Singapore Management University
Shares of 21Vianet were down as much as 30% on Wednesday after independent research firm Trinity Research Group published a dizzying 121-page report calling the company a Ponzi scheme.
The $1.2 billion company has recovered some of its market value in late-morning trading.
Trinity says it conducted, “a six-month investigation of 21 Vianet Group with an expanded team of local accountants, lawyers, telecom and Internet industry executives/insiders and VNET customers, partners and former employees.”
21Vianet is a Chinese-based internet data services provider, and rallied from around $10 per share in the middle of last year to more than $30 per share earlier this year.
Before Wednesday’s sharp drop, shares of 21Vianet were at around $21. As of 11:30 am ET on Wednesday, 21Vianet shares were down 16%.
Trinity’s findings are based on a number of points, including:
•“Overwhelming evidence that the company is committing accounting and securities fraud.” Trinity expects 21Vianet will be delisted from the Nasdaq.
•“[21Vianet] overstates cabinet growth and utilization in the core Internet Data Center (IDC) hosting business which burns through 27% of (overstated) revenue in cash due to exceedingly aggressive construction.”
•21Vianet’s 2014 acquisitions, “are signs the Ponzi scheme is spinning out of control.”
•“Management has pumped the stock through promises of huge cloud revenue and a telecom license that will never materialize.”
Trinity is an independent research group established this year, and says its mission is to, “uncover some of the world’s most compelling public market mispricings and share our unique perspectives on their fair value.”
Following Trinity’s report, 21Vianet issued the following statement:
“21Vianet believes that the allegations made contain numerous errors, unsupported speculation and malicious interpretations of events. 21Vianet is committed to providing more detailed response to the allegations promptly and to rebutting false claims that attempt to undermine confidence in its business, financial condition and results of operations.
21Vianet remains focused on its business vision and strategy to become a leading Internet infrastructure service provider in China. 21Vianet intends to take all appropriate legal actions to defend itself against these malicious allegations and to protect the interest of its shareholders.”
Before Wednesday’s report, Trinity had published two reports, both concerning Chinese mobile app maker Sungy Mobile.
Earlier this year, Let’s Gowex, a Spanish tech company, went out of business just five days after independent research firm Gotham City Research called it a fraud.