Seek, the Australian job board (ASX: SEK), announced that it has asked for a trading halt following the publication of a report that accuses Seeks’ subsidiary, Chinese job board Zhaopin, of containing fake job postings.

The report, published by US-based investment firm Blue Orca alleges that Zhaopin’s platform is inundated with fake postings by companies which were deregistered, in liquidation or flagged as “abnormal operations” by Chinese authorities.

“Companies we called about their job postings on the website even stated directly that the posts were fraudulent. Our due diligence also uncovered a whistleblower claim by a Chinese college student alleging that Zhaopin pays people to submit fake resumes,” the report stated.

“We think Zhaopin’s platform is rotten, which is devastating for Seek’s prospects,” the report stated. “Seek has historically paid a dividend, giving the false impression that its business produces healthy profits and cash flows. But these payments have been largely funded by debt.”

“A serial acquirer, Seek has repeatedly tapped the capital markets to fund acquisitions, raising its net debt-to-reported EBITDA to 3.2x. By our calculation, Seek’s true leverage is much higher,” the report states. “Rather than valuing Seek as a fast-growing online recruiting platform, we value Seek for what it is—a slow or no-growth platform whose core business is shrinking and which carries a dangerous amount of debt. Even if we value Seek’s Australian and non-China businesses at a generous 20.5x EV/adjusted EBITDA, we believe Zhaopin merits a substantial discount. We value Seek at AUD 7.20 (USD 5.07) per share, a 69% downside from its last traded price.”

In a tweet, Blue Orca said, “Seek claims that high-end job platform Highpin generates tens of millions in annual revenues and will be a key driver of growth in China. But our deep dive reveals that at least 71% of the posts on Highpin are expired, recycled, obviously fake or of dubious authenticity.”

Blue Orca also alleges in the report that “Seek misrepresents Zhaopin as the number one platform in China and that its profits are inflated by questionable non-cash gains and aggressive accounting.”

The Sydney Morning Herald reported that investors dumped Seek shares following the release of the report. The stock fell by 8% within an hour until the trading halt was put in place with shares at $21.51, down 5.91% on the day.

Staffing Industry Analysts reached out to Seek for comment and were directed to the company’s published statement on the report.

“Seek is aware of the opinion piece published today by Blue Orca Capital, a Texas-based short-seller. Given that the strategies of short-seller opinion writers such as Blue Orca Capital are generally to generate publicity by drawing companies into a public debate, Seek's preferred response is simply to confirm that it continues to meet its continuous disclosure obligations and is confident of its long-term outlook,” the statement from Seek read.

“While we do not believe reports of this nature warrant a response, the ASX (Australian Securities Exchange) has asked for one,” the company stated. “Seek has therefore asked for a trading halt until it provides this response and will do so by market open on Monday 2 November 2020. As already planned, a more general Seek group trading update will be provided at SEEK’s Annual General Meeting on 19 November 2020.”