Kai-Fu Lee, Citron battle heats up

BEIJING - US short-sellers have been targeting US-listed Chinese companies in the past two years, but now they are running into strong backlash from China led by Internet guru Kai-Fu Lee.

Lee and a group of over 60 executives and investors in China signed a joint statement late Monday, accusing some "China Short-sellers" -- particularly Citron Research -- of "targeting legitimate companies with either no problems or minimal problems" for their own gains.

"Their reports would take advantage of the information asymmetry between China and the United States, and boldly tell lies, knowing that their American readers have no way of verifying them," according to the statement, which was posted on a new website created by the group.

The spat was sparked by a Citron report about Chinese Internet company Qihoo 360 Technology Co. that listed on the New York Stock Exchange.

Qihoo 360 makes anti-virus software but also has an online gaming platform, a Web browser and a new Internet search engine business. Zhou Hongyi, chief executive officer of Qihoo 360, was among those who signed the statement.

In one report on August 24, Citron recommended Chinese Internet company Sohu, which operates the Sogou search engine, as a better investment choice than Qihoo 360.

On August 27, Lee published a lengthy rebuttal of Citron's report with a systematic takedown of the company's claims.

"The most ludicrous part of Citron's report is its faulty analysis of search engines and basic misunderstanding of search engine Sogou's strategy and products," wrote Lee, former head of Google China.

He accused Citron of being confusing Sohu's search engine with its Pinyin Input Method Editors businesses, tools used to input Chinese characters via a romanized system.

The report shows that Citron "lacks even the most basic understanding of the Chinese Internet and search engine market, yet it fabricates and distorts information to deceive investors," he said.

"Since Citron has already made big bets on these recommendations before their reports are published, Citron doesn't have to be qualified; Citron's recommendation doesn't have to be right; Citron just needs to mislead their readers to follow their recommendations," Lee wrote.