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US Law Office Announces Investigation on Possible New Oriental Fraud

09-20 10:59 Caijing
The investigation is related to allegations that the company's certain statements regarding EDU's business, operations and prospects were false and misleading

The Law Offices of Todd M. Garber announced Tuesday that it is investigating potential claims against China’s leading education services provider New Oriental Education & Technology Group Inc. (NYSE:EDU) concerning possible violations of federal securities laws.

Todd M. Garber said the investigation is related to allegations that certain statements issued by the Company between July 21, 2009 and July 17, 2012 regarding EDU's business, operations and prospects were false and misleading.

In a financial statement that EDU released on July 17, the company disclosed that the SEC had announced a SEC probe on its Variable Interest Entity (VIE), a structure that is commonly adapted among U.S.-listed Chinese companies.

New Oriental shares dropped as much as 35% following the statement before a report from short seller Muddy Water’s dragged down the stock by another 35% to a five year low. 

The investigation launched by Todd M. Garber will concern allegations that the Company lacked a sufficient basis for the consolidation of Beijing New Oriental Education & Technology (Group) Co., Ltd., a variable interest entity of the Company, and its wholly owned subsidiaries, into EDU's consolidated financial statements.

Meanwhile, Todd M. Garber will also investigation on EDU’s store network which the company claimed entirely company-owned but Muddy Waters accused not, and on whether that upfront franchise and other fees had inflated EDU’s cash balances.

In an earlier report, the short seller said that EDU claimed the entire store network to be company-owned while the company had large undisclosed franchisees operating which is not a hidden bonus for investors.

These franchisees, Muddy Waters further contended, were used to create “substantial” fraud in the company’s accounts.

The investigation will also concern whether the company’s financial results were misstated and misleading due to allegations that the schools that conduct EDU's operations were ultimately state property and the Company lacked internal and financial controls.

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