Muddy Waters Says TAL Education's Accounting Is Reminiscent Of Enron

TAL Education Group (ADR) TAL stock was plunging 10 percent oWednesday after short seller and Muddy Waters founder Carson Block called the company a fraud. 

Tal has overstated its net income by more than 43 percent in its past two fiscal years, Block said, comparing the Chinese education company to one of America’s most notorious frauds.

“TAL combines the old school China fraud playbook of simply penciling in more favorable numbers with the more sophisticated asset parking fraud of Enron," Block said. 

Tal Education has not responded to a request for comment from Benzinga on Block's allegations. 

Block highlighted two suspicious transactions that he said added $153.2 million to the company’s pre-tax profits in the past two years.

Muddy Waters, which has taken a short position in Tal, estimates the company’s accounting has inflated operating profit by 21 percent and pre-tax profit by 39 percent since 2016.

“When you look at the shareholder registries, you see that TAL has been lying about investments and how it made these investments and that really goes to the heart of what they’re doing,” Block said in an interview with Bloomberg Wednesday.

According to Tal’s website, the company has 2.3 million students at its educational facilities across China. Tal appears to be a real company doing real business with real customers, but investors simply can’t trust the numbers the company is reporting, Block said.

Chinese companies like Tal that list on U.S. markets allow China to siphon off U.S. capital back into the Chinese economy, a practice which the Chinese government facilitates, the short seller said. 

Even after Wednesday’s sell-off, Tal shares are up 103.7 percent in the past year.

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