Citron Research reported that 40% of GSX Techedu’s 2019 registered users and 70% revenue were fake, and multiple undisclosed related parties including Beijing JiaMeng, Parent YouYou, Beijing JiaZhangCun were controlled by long-time associates of Chairman and CEO Larry Chen for falsifying financial data or transferring costs on April 30th. Citron Research claimed that they could provide clear evidence that GSX was manipulating its reported financials via a recorded phone call with an employee at a brushing outfit (i.e., a firm that is paid to generate fake users and reviews) hired by GSX.
Larry Chen denied the charge in his private social media on May 1st. Then GSX officially responded that there existed some loopholes in the report provided by Citron. The report neither involved the revenue of GaoTu XueTang which dominated 69.34% income in GSX's K12 business in 2019, nor proved the validity of the provided phone call record. Finally, GSX showed that the transaction with those accused undisclosed related parties had already been revealed in its fiscal report.
With Citron’s accusation, GSX’s stock price decreased 2.62%. After Larry Chen and official clarification, the stock price increased to 1.51% (39.56 dollars per stock).