Enphase Energy Short Seller Doubles Down On Fraud Allegations Following Third-Party Investigation

Enphase Energy Inc ENPH shares plummeted 23.2% on Wednesday after short seller Prescience Point released a new report alleging fraudulent accounting practices and predicting Enphase will ultimately be delisted.

In the new report, Prescience Point claims Enphase has fabricated financial statements and SEC filings.

“Based on our research, we estimate that at least $205.3m of its reported US revenue in FY 2019 was fabricated. Based on statements provided by former employees and other solar industry participants, it appears that the Company inflated its international revenue significantly as well,” Prescience Point alleges.

In addition, the firm claims a significant portion of Enphase’s gross margin expansion from the second quarter of 2017 to the first quarter of 2020 is fraudulent.

Investigation Findings: Prescient Point called for regulators to investigate Enphase’s accounting practices and claimed a third-party investigation of Enphase’s India business revealed the following troubling findings:

• Enphase is allegedly using an India-based team to carry out accounting fraud.
• Nearly all of the former Enphase employees the investigator interviewed claimed the company was fabricating financial numbers.
• At least one former Enphase distributor in India terminated its relationship with the company due to concerns over potentially fraudulently inflated invoices.
• Employee turnover in Enphase’s Bangalore office is an extremely high 70%, which Prescient Point attributes in part to Enphase’s accounting practices.

Original Allegations: Prescient Point previously accused Enphase of using improper deferred revenue accounting back in 2018, but the market mostly ignored the allegations and the stock continued to rise.

“However, given the overwhelming evidence of fraudulent behavior presented in this report, which is backed by numerous former employees, numerous solar industry participants, a forensic accountant, and reliable third-party data sources, we believe that this time will be different, and that this sham turnaround story will soon meet its inevitable, dire fate,” Prescient Point said on Wednesday.

In lieu of a price target, Prescience Point predicted the Enphase shares will eventually be delisted.

A representative from Enphase was not immediately available for comment.

Benzinga’s Take: Wednesday’s sell-off is a much different market reaction than the one following the initial Prescience Point report back in 2018. However, some investors may simply be taking profits on the stock just in case given it is up more than 600% in the past two years.

Do you agree with this take? Email feedback@benzinga.com with your thoughts.

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