(Yicai Global) April 8 -- Hong Kong hedge fund manager Snow Lake Capital has increased its stake in two of the latest US-listed Chinese firms to be embroiled in financial fraud in a show of support, the 21st Century Business Herald reported today.

Baidu-backed video platform iQiyi has been accused of inflating its 2019 revenue by about CNY8 billion to CNY13 billion (USD1.13 billion to USD1.84 billion) and its user numbers by between 42 percent and 60 percent, according to a short selling report published by New-York based due diligence firm Wolfpack Research yesterday.

This was followed by leading online tutoring firm TAL Education Group confessing yesterday to uncovering instances of employees forging contracts to external suppliers and exaggerating the sales of its Light Class, a form of e-class, business.

Snow Lake, which has USD2 billion under management, increased its stake in iQiyi and TAL yesterday, Chief Executive Sean Ma said. He did not reveal how much stock the firm had held in the two Beijing-based firms before the news broke.

The data and conclusions of the report shorting iQiyi are not accurate, Ma said. The short seller's behavior is very irresponsible and is upsetting the market, he added.

TAL is also a very good company, Ma said. Snow Lake bought up USD100 million in stock during after-hours trading yesterday and will continue to trust and support the e-education firm as a long-term investor.

This latest accounting scandal comes on the heels of a damning report published by US short seller Muddy Waters in January that has brought Luckin Coffee, China's archrival to Starbucks, to its knees. Last week the Xiamen-based coffeehouse chain admitted to cooking its books by up to CNY2.2 billion (USD311.3 million) and has since lost over 80 percent of its market value.

Though Snow Lake reserves the right to go short, it still prefers a long-term, fundamentals-driven investing approach, Ma said. There are rumors that Snow Lake was behind the short report anonymously submitted to Muddy Waters, something that the fund manager denies.

TAL's stock [NYSE:TAL] plunged more than 20 percent in after-hours trading yesterday. IQiyi's shares [NASDAQ:IQ] fell 11.2 percent to USD14.87 after the critical report was published, but clawed back some lost ground to close 3.2 percent higher at USD17.30. The stock is under pressure in after-hours trading, falling almost as much as 4 percent.

Editor: Kim Taylor