The SEEK Limited (ASX: SEK) share price has returned from its trading halt and sunk lower on Monday.
At the time of writing, the job listings giant's shares are down 5% to $20.43 after responding to a short seller attack.
What was the short seller attack?
On Thursday, Blue Orca Capital released a short seller report claiming, amongst other things, that SEEK's China-based Zhaopin business was operating with fake listings and paying student to create fake resumes.
Blue Orca's commented: "Zhaopin's platform is inundated with fake postings by companies which were deregistered, in liquidation or flagged as abnormal operations." It also claimed to have contacted companies about their job postings on the website and was told "that the postings were fraudulent."
The short seller went so far as to describe the Zhaopin platform as "rotten" and "devastating for Seek's prospects."
And finally, its analysts claim that SEEK is giving off a false impression that it is generating healthy profits and cash flows by paying dividends. However, it believes these payments have "largely been funded by debt."
As a result of the above, Blue Orca believes that SEEK's shares are worth just $7.20. This compares to its last close price of $21.51, which implies potential downside of 66%.
What was SEEK's response?
This morning SEEK responded to Blue Orca's "inaccurate statements" and allegations that it stated are "unsubstantiated."
The company said: "We believe the goal of the Report is to use speculative assertions to generate adverse publicity and then draw SEEK into a public debate, which is consistent with the usual practice of short-seller firms. The fullness of SEEK's market disclosures ensures that market participants have a great deal of information against which to assess the merit, or lack thereof, of claims such as those in the Report."
Nevertheless, it has responded to the report's assertions and strongly disagrees with them.
It notes that Zhaopin strives to be an industry leader in dealing with fake ads and candidate CVs which do occur on all job listings websites globally. It feels the allegations are greatly exaggerated and misleading.
In respect to its accounting matters, the company advised that the report makes unsubstantiated claims in relation to its accounting practices. It notes that these appear to criticise the company for complying with IFRS standards.
Finally, also of note, SEEK defended its cash flows and points out that it has a long track record of generating strong operating cash flows. This includes its Zhaopin business, which has resulted in it having a net cash position of ~$222 million at the end of June.