New Oriental Tumbles on SEC Investigation, Research Report

New Oriental Education

plummeted as much as 30 percent on Wednesday, after the company reported a sales slowdown and a formal SEC investigation. A report by Muddy Waters Research today also has raised questions about whether the company's network of schools are 100 percent company-owned, and predicted that the company's auditor may resign. New Oriental said it had received an SEC notice on July 13. Investigators want to know if there was “sufficient basis” for the consolidation of a variable-interest unit of the company into the parent company's financial statements. New Oriental on July 11 announced that it changed the shareholder structure of the unit – Beijing New Oriental – so that it was held solely by a group controlled by the parent company's CEO, Minhong Yu. The company did not take questions regarding the investigation, but said it plans to fully cooperate with the SEC. New Oriental's independent auditor, Deloitte, has not yet completed its audit for the year ending May 2012. However, President and CFO Louis Hsieh claimed that, "Deloitte continues to believe that the Company's historical financial statements are appropriate." The investigation comes after the SEC implemented a two-week trading suspension for China Medical Technologies

, after regulators questioned the accuracy of the company's reported information. New Oriental also reported earnings, and said that its student enrollment growth slowed to 8 percent compared to the year-ago quarter. This marks the company's' slowest growing quarter since 2010. Management said it faces tough year-over-year comparisons in the quarter, as well as difficult economic conditions. New Oriental lowered its long-term earnings growth rate to 25%, down from 30% citing saturation in major cities and a challenging economy. The company guided revenue lower for its fiscal-first quarter, as well.