In a firm rebuttal to explosive claims of financial misconduct, SenseTime Inc. has strongly dismissed allegations of revenue inflation levied by the American short seller Grizzly Research.
This high-stakes financial drama, which saw SenseTime’s shares take a steep 9.7% dive, unfolds amid a tense backdrop of increasing scrutiny in the tech world. Moreover, the company’s emphatic denial sets the stage for a gripping showdown in the ever-evolving global technology and finance saga.
Grizzly research raises red flags
Grizzly Research’s report, released on Tuesday, paints a concerning picture of SenseTime’s financial practices. The research company alleges SenseTime engaged in “revenue round-tripping,” a scheme where funds are funneled through customers to make phantom purchases from the firm. According to Grizzly, this tactic was revealed in two court cases in China. The short seller asserts that these purchases may never have been delivered, casting doubt on SenseTime’s revenue authenticity.
Two court cases describe revenue fabrication and round-tripping schemes in which SenseTime either directly or through intermediaries provides funds to customers that in turn are used to purchase goods from SenseTime that might never have been delivered. pic.twitter.com/r4kV1AZlNB
— Grizzly Research (@ResearchGrizzly) November 28, 2023
Responding to these allegations, SenseTime issued a statement via the Hong Kong Stock Exchange clarifying that it is reviewing the claims and exploring actions to protect shareholder interests. SenseTime further dismissed the report as baseless, highlighting it as lacking merit, filled with unfounded accusations, and demonstrating a misunderstanding of the company’s business model and financial structure.
“(SenseTime) believes the report is without merit and contains unfounded allegations and misleading conclusions and interpretations.”
Additionally, SenseTime criticized Grizzly Research for not verifying information with them directly. Despite the initial shock, SenseTime’s shares recuperated somewhat, closing 4.86% lower.
Under the microscope: SenseTime’s troubled journey
SenseTime, once celebrated as a gem in China’s AI landscape, particularly for its facial recognition technology, has not been a stranger to controversy. The company faced U.S. government sanctions in 2019, landing on the Entity List that limits American businesses from collaborating with them. The U.S. government cited links to human rights abuses in China’s Xinjiang region, a claim SenseTime has refuted.
The sanctions had far-reaching implications, affecting SenseTime’s market prospects and IPO plans. Initially set for a Hong Kong listing in mid-2021, the company delayed its IPO after the U.S. identified it as part of the “Chinese military-industrial complex.”
Despite these setbacks, SenseTime proceeded with its listing in December at a significantly lower share price than anticipated. Currently, its shares stand 64% below their IPO price, reflecting investor skepticism and the impact of U.S. restrictions.
Grizzly research’s damning verdict on SenseTime’s future
Grizzly Research didn’t just stop at financial allegations. The short seller also questioned SenseTime’s technological edge, suggesting the company lacks a competitive advantage in AI. The research also bluntly assessed SenseTime’s business model as fundamentally flawed, with few prospects for future scalable profits. This grim outlook, coupled with the U.S. government’s blacklisting, casts a long shadow over SenseTime’s market potential and technological innovations.
“We believe SenseTime is operating a fundamentally dead-ended facial recognition software business, plus some additional AI R&D projects with almost no chance of scalable future profits.”
As SenseTime grapples with these allegations and the fallout, a pivotal question emerges: Can the company maintain its footing in the global AI market amidst these financial and ethical challenges?