On November 30, 2020, analyst Hindenburg Research published a report concerning Kandi Technologies Group, Inc. (NASDAQ: KNDI), calling Kandi “a brazen scheme” that “falsif[ied] revenue using fake sales to undisclosed affiliates.” Hindenburg said that its report was based on “interviews with over a dozen former employees and business partners” of Kandi, as well as an “extensive on-the-ground inspection at Kandi’s factories and customer locations in China.” Hindenburg asserted that approximately 64% of Kandi’s sales in the last twelve months were to undisclosed related parties, and that Kandi “has consistently booked revenue it cannot collect, a classic hallmark of fake revenue.” The market was stunned by this report, and as a result, shares of KNDI fell over 28% in one trading day.
A lawsuit has been filed against Kandi and certain of its executives in the U.S. District Court for the Eastern District of New York. The lawsuit is captioned Valdés v. Kandi Technologies Group, Inc., et al., No. 1:20-cv-06042 (E.D.N.Y.). The suit alleges, among other things, that Kandi artificially inflated its reported revenues through undisclosed related party transactions and that the majority of Kandi’s sales in the last year were to undisclosed related parties or parties with such a close relationship to Kandi that it cast doubt on the arms-length nature of their relationship.