February 8, 2018 / 1:22 PM / 10 months ago

IQE shares tumble after Muddy Waters says short on stock

(Reuters) - Shares of British semiconductor material maker IQE (IQE.L), whose technology is used in Apple’s (AAPL.O) iPhone, fell nearly 19 percent after Muddy Waters Capital LLC said it was short on the company.

The short-seller said IQE was an “egregious accounting manipulator” and that it was reasonable to adjust net income down by about 5 million pounds or 69 percent for the first half of 2017 to account for likely “aggressive capitalization of expenses”.

It also adjusted downwards the company’s net income for 2015 by 58.5 percent and that of 2016 by 25.4 percent.

Muddy Waters said IQE's transactions with CSC, a joint venture with Cardiff University, was "not substantive, and the accounting is possibly designed to deceive investors." (bit.ly/2FYEtBf)

In response, IQE said the information in the report is either factually inaccurate or has previously been disclosed in the company’s annual reports and financial statements.

Muddy Waters’ report came a week after one from ShadowFall, a hedge fund manager short on IQE, said it was concerned about two of IQE’s joint ventures set up with universities in Wales and Singapore. The joint ventures together accounted for a third of IQE’s earnings in 2015 and 2016, it added.

IQE dismissed the ShadowFall report as being “without merit” and providing a “misleading analysis of company’s financial position.”

The company also said then that it continues to expect full- year revenue ahead of market expectations.

Shares of the company were down 10 percent at 101.4 pence at 1629 GMT and were among the top 10 losers on the London Stock Exchange .PL.L.

Reporting By Justin George Varghese and Rama Venkat Raman in Bengaluru; Editing by Vyas Mohan

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