Citron Hits Hailiang Education Group With Critical Report

Hailiang Education Group Inc (ADR) HLG plunged 7 percent Monday after Citron Research accused the company of fraudulent practices and called for regulatory scrutiny.

“While some might show optimism in the company’s prospects based on changing educational policies in China, to Citron this seems more like the good ole China Hustle,” Citron’s Andrew Left wrote in a report.

He offered a litany of red flags:

• Hailiang used the same underwriter as the now-halted Longfin Corp LFIN. Network 1 Financial Securities has a history of securities violations.
• The company has had three CFOs since September 2016, and two board members have resigned in the past six months — all positions vacated for “personal reasons.”
• It replaced KPMG, an auditor that exposed “material weakness,” with another auditor known for dubious integrity. Marcum was accused of bias in auditing NQ Mobile, and its chairman created a conflict of interest in serving as both a board member and chair of the audit committee for Orient Paper Inc ONP.
• Management concedes risk in the enduring absence of internal control over its financial reporting.
• The company has increased the amount of cash it's transferring to a related entity controlled by Hailiang’s majority owner.

“Citron has NEVER seen anything as bad as Hailiang,” Left wrote. Hailiang did not immediately respond to a request for comment from Benzinga.

Ahead of Citron’s report, Hailiang’s stock had risen more than 735 percent year-over-year and appeared to be continuing its rise. At time of publication, shares were down 5.7 percent on the day at $72.54.

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