C3.ai Accused of Accounting Fraud. Here's What Investors Need to Know.

C3.ai (NYSE: AI) stock plunged on Tuesday after it was slammed by short-seller Kerrisdale Capital for the second time in a month. In a scathing letter to C3.ai auditor Deloitte & Touche, on which the Securities and Exchange Commission (SEC) was copied, Kerrisdale accused the company of multiple accounting irregularities, making the case that C3.ai was inflating its revenue and gross margin in order to appear as if it's a software subscription company, even though it's really a consulting services-oriented business. As Kerrisdale argues, subscription software businesses tend to trade at much higher multiples than consulting businesses so it's in C3.ai management's interest to inflate the multiple and the valuation because executives are compensated largely with stock and options.