tw-rl

1/ The GSX Robo Army Chinese tutoring platform GSX Techdu is under fire, with the company publicly stating it is not a fraud after damning reports from @muddywatersre @CitronResearch @ResearchGrizzly. In this Friday Funny (alleged) Fraud, we cover $GSX. Who’s up for a story?

2/ Imagine you are the CEO of a chain of driving schools - DSX Drive. It’s a simple model - young men and women pay to come take driver’s ed classes at your facilities. Business is good, but certainly not great. The biggest problem? You’re not rich. But then, you have an idea!

3/ “Investors don’t love driver’s ed companies, but they love tech companies,” you tell your board. “We will become a tech company!” So you buy a domain name and create an online driver’s ed platform. You rebrand as DSX TechDrive, just to make it clear. You’re a tech CEO now!

4/ But there’s a problem: You don’t have many customers for the online business. Without many customers, there won’t be much revenue. Without much revenue, you won’t be rich. So you decide to fake it. “It’s just for now, to get things started,” you tell yourself.

5/ You hire a few shady characters to build robot programs that “buy” packages and “attend” classes. Revenues go parabolic (not really, but who cares!). You IPO DSX TechDrive. Investors go crazy over your revenue growth and tech-enabled business model. Finally, you’re rich!

6/ Your auditors either don’t notice or don’t care. Investors call you a genius. You start wearing a black turtleneck, of course. But the rouse begins to come undone. Skeptics surface, calling your business an elaborate fraud. “This is not a fraud,” you state defiantly.

7/ This is the, necessarily incomplete, story of the funny alleged robot-enabled fraud of GSX Techedu. Like Luckin Coffee, GSX is a US-listed Chinese business allegedly engaged in fraud. As a pattern seems to emerge, perhaps US regulators should be paying more attention...

8/ As this one is still a developing story, there may be further updates to come. Thanks to @muddywatersre @CitronResearch @ResearchGrizzly for publishing research on this incredibly funny (alleged) fraud. Stay tuned...