Shares of Chinese online education company GSX Techedu Inc (NYSE:GSX) fell Monday after short seller Carson Block argued the majority of its students are bots.

What Happened To GSX Techedu

GSX Techedu claims to be an online education company in China but using public data, it's evident it "doesn't really actually educate that many people," the founder and CIO of Muddy Waters Capital said on CNBC's "Power Lunch."

Specific data for each user like log history can be found when a paying customer goes into the Google Chrome developer tools and downloads a specific Zip file, Block said. Analyzing the data reveals "three very high confidence patterns of bot behavior" among users.

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Why Block's Comments Are Important

Block and his firm analyzed data from more than 50,000 users and are "highly confident" 73% of those are in fact bots. He said another 7% or so of users are "very likely" bots.

In other words, around eight out of 10 users aren't real students but the final number could be as much as nine out of 10, he said.

What's Next For Investors

Investors should be made aware that if eight to nine out of 10 students are in fact fake then 80% to 90% of reported revenue is just as fake.

"The company barely exists, yet managed to cheat its way through an eight-plus billion dollar market cap," Block said.

GSX's stock was down 7.5% to $32.83 per share at time of publication.