Why the SEC is Investigating GSX
Chinese online educational company GSX announced today that the SEC had opened a probe into their finances, potentially reminiscent of the Luckin Coffee and Wirecard investigations that revealed all sorts of fraud inflating reported revenues and profits. In all these cases, private investors and journalists began reporting the fraud long before government agencies ever got interested.
I have always found stories of business frauds to be fascinating. I am not sure why this is, but it may be in part because I really got sucked into the Enron cult, in part due to my working briefly with Jeff Skilling at McKinsey on Enron. It took me a long time to accept the core of the Enron fraud (thanks to combined efforts of Smartest Guys in the Room and Conspiracy of Fools)** and since then I have taken a won't-get-fooled-again approach, I think. So much so that I have probably become unhealthily skeptical, unable to get excited about investing in much of anything in this market and shading towards the Zero Hedge permabear stance.
Anyway, I like a good business fraud and discovery story (Bad Blood about Theranos and Billion Dollar Whale about Jho Low and 1MDB are good recent examples). To that end, I found that the Muddy Waters Research paper on GSX is pretty interesting, detailing how they came to the conclusion that most of GSX's customers are actually bots rather than real paying customers.
Disclosure: I am short GSX
