Ebang share prices on the Nasdaq have fallen 9% since Tuesday, when short seller Hindenburg Research released a report accusing the company of a number of misdeeds including inflating its mining rig sales and cryptocurrency trading volumes.

Why it matters: Ebang is one of two Chinese cryptocurrency mining rig makers that is publicly traded on US stock markets along with peer, Canaan Creative.

The timeline: On Tuesday, the day the short report was released, Ebang shares opened at $5.23, falling 17% from market close on Monday.

  • On Monday, Ebang announced the launch of a crypto exchange, dubbed Ebonex.
  • The stock lost an additional 4.6% in the half hour after market open on Tuesday, then rose modestly to close at $5.53.
  • The stock rebounded to $5.58 on Wednesday afternoon, but has been dropping since.
  • Ebang stock has lost 20% of its value since market close on Monday, closing at $5.03 on Thursday.

Missing earnings: Ebang’s stock began to fall on March 17 after reaching a high of $11.85 per share that day. As of Friday, it has not yet announced a date for the release of its 2020 earnings.

  • Ebang has only disclosed earnings once since listing on the Nasdaq in June, when it released its half-year 2020 results on Sept. 25.
  • The company raised $150.4 million in two follow-on share offerings, which closed on Feb. 17 and April 6.

The short report: Hindenburg research said Ebang is “simply the latest chapter in the ‘China Hustle’ disguised as a Bitcoin mining play,” referring to a documentary exposing Chinese companies that conduct stock market fraud on US exchanges.

  • The company failed to list twice on the Hong Kong Stock Exchange in 2018, before listing on the Nasdaq in 2020.
  • Ebang’s equipment is inferior to its competitors’, its sales have dwindled, and the company has tried to shift investor attention to its new crypto exchange, which reports “fictitious volumes,” Hindenburg said.
  • The rig maker has inflated sales through third-party transactions and funneled cash to “opaque deals with insiders and questionable counterparties,” the short seller said.
  • In a statement on Wednesday, Ebang stopped short of denying the allegations, saying the report “contains many errors, unsupported speculations and inaccurate interpretations of events,” and that it will review the accusations and take “whatever action necessary” to protect investors.

Rig sales: Bitcoin and Ethereum prices have soared in the last few months, and so have mining rig sales. Industry leader Bitmain’s deliveries are booked for months.

  • Several companies have pivoted to crypto mining, but none have announced purchases from Ebang. The company’s rigs are not popular, according to several miners TechNode has spoken with.
  • The most popular mining rigs globally are Bitmain’s AntMiner, MicroBT’s Whatsminer, and Canaan’s Avalon Miners, according to Flex Yang, CEO of Babel Finance, which provides financial services to crypto miners.
  • Embattled Canaan Creative, which has lost its competitive edge and was similarly the target of a short report, has seen its pre-sales rise since mid-February on the back of surging cryptocurrency prices.
  • Ebang said on March 17 that it had completed the design of its first 6-nanometer chip, while Bitmain has been selling rigs with 5nm chips since September.
  • Hindenburg said that Ebang’s sales are now “near-zero,” and that previous reported deliveries were largely fabricated and or were made up of defective units, citing Chinese media reports.

The crypto exchange: Ebang first announced that it is building a crypto exchange in August, entering an already crowded market.

  • The exchange was five days late to launch. Ebang shares prices rose on news related to the crypto exchange.
  • Ebonex reported $243 million traded between Ethereum and Bitcoin during its first 24 hours, Hindenburg said, compared with $60 million on Huobi Global—the world’s second-largest exchange by volume traded—on the same day.
  • The short seller said that it would have been impossible for Ebonex to trade this volume “given its limited web and social media footprint,” citing relatively low numbers of social media followers and Google searches.
  • The 24-hour trading volume on Ebonex for ETH/BTC has fallen to $1.1 million as of the time of writing.
  • The company has also announced plans for digital asset management firms in Canada, New Zealand, and Australia, as well as plans to enter the mining business.

Sales inflation scheme: The reason for the failed listings, Hindenburg said, was a sales inflation scheme involving Yindou, a peer-to-peer lending scheme. P2P lending in China was an industry rife with fraud, with many companies simply Ponzi schemes masquerading as tech firms.

  • Cui Hongwei, the spouse of the Yindou CFO, transferred RMB 250 million ($38 million) to Ebang between December 2017 and February 2018. Ebang then transferred RMB 380 million to Cui between March and April 2018, the report said, citing local media.
  • Hindenburg said that this was essentially a sales inflation scheme. Yindou defaulted on RMB 4.4 billion of debt in July 2018.

Shady underwriter: Ebang’s IPO underwriter, Hong Kong-based AMDT Global Markets Limited, has a “history of fraud and self-dealing allegations (including from one of China’s largest private equity firms), as well as a track record of US IPO flops,” Hindenburg said.

  • Ebang directed $103 million in bond purchases linked to AMDT following its successful IPO on Nasdaq, according to the report, an amount $11 million more than its IPO proceeds.

Eliza was TechNode's blockchain and fintech reporter until July 2021, when she moved to CoinDesk to cover crypto in Asia. Get in touch with her via email or Twitter.