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CHINA BRIEF | Following Luckin Coffee, TAL Education discloses sales fraud

The company’s shares dived over 23% in after-hours trading.

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Beijing-based TAL Education Group (NYSE: TAL), a K-12 after-school tutoring services provider, disclosed on Tuesday that, during its internal auditing process, it has found inflated class sales, according to a company’s press release.

The firm said that “certain employee wrongdoing was discovered”, adding that the employee conspired with external vendors to inflate sales of the company’s newly introduced business called Light Class, by forging contracts and other documentations. The company reported the case to the local police and the employee has been taken into custody, according to the announcement.

Law firms Labaton Sucharow and Holzer & Holzer have announced investigations into the company following the fraud disclosure. TAL’s shares dived over 23% in after-hours trading to USD 42.8 per share.

For the fiscal year 2020 ended February 29, 2020, Light Class sales accounted for 3% to 4% of the company’s total estimated revenues, said TAL, without offering more details.

TAL introduced an app called Xue Er Si Light Class in 2018 to offer artificial intelligence-enabled tutoring for primary school students, according to information found on Apple’s App Store. The firm also launched a device called Xue Er Si Light box, which can be connected to a TV to offer online courses, Chinese media outlet Techweb reported.

Last Friday, Chinese on-demand beverage chain Luckin Coffee also admitted financial fraudulence and announced an internal investigation into the conduct of former chief operating officer Jian Liu, who is believed to have inflated revenues by RMB 2.2 billion (USD 310.5 million).

This article is part of KrASIA’s “China Brief” section, where KrASIA’s reporters will provide quick daily updates about the tech ecosystem in China.