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Short seller Scorpion Capital accuses Japan’s most actively traded company of being the ‘world’s largest outright fraud’

Lasertec is one of dozens of companies that have seen their valuations skyrocket due to demand from AI developers, who have flocked to manufacturers behind the global supply chain that provide the advanced semiconductors and vast amounts of energy needed to build AI models to drive.

Lasertec’s signature product is the ACTIS EUV inspection machine, used to detect manufacturing defects in advanced semiconductors, but Scorpion claims the technology, along with Lasertec’s financials, is a sham.

“The ACTIS system is defective, with a fatally flawed EUV light source and other insurmountable problems, which it has hidden from investors,” Scorpion’s report reads. “The ‘new’ ACTIS A300, recently announced as the next-generation EUV product and growth driver, is a hoax.”

The meteoric rise in Lasertec’s share prices has made the company a rising star on the Tokyo Stock Exchange: the company’s shares only started trading for pennies in 2018, before a six-year period in which the share price rose by more than 2,000% soared as investors hunted for the associated returns. with its role in the ultra-hot semiconductor industry.

EUV inspection machines are a must-have for large-scale manufacturers, including TSMC, Intel and Samsung, who rely on the complex and extremely expensive devices for quality control. The biggest name in the EUV field is Dutch company ASML, which has a virtual monopoly on the equipment needed to etch chip designs onto wafers, charging $380 million apiece for its top-of-the-line machines. Lasertec has been producing EUV quality control machines since 2017, which use similar technology for quality control rather than etching designs onto chips.

Scorpion researchers visited Lasertec’s manufacturing facilities and reported that the actual condition of the site is far from what Lasertec advertised. The company, founded by former Carl Icahn acolyte Kir Kahlon, wrote that the company’s new “innovation park” in Yokohama is actually “a generally abandoned facility with no R&D or manufacturing activities.” Scorpion also cited interviews with leaders of Lasertec’s key customers, who Scorpion claims are “annoyed and enraged to the point that TSMC has stopped buying (Lasertec’s) EUV machines.”

Scorpion also pointed out Lasertec’s accounting practices. The short seller claims the company has routinely overstated revenues and profits to investors, and manipulated its stock numbers.

Shares of Lasertec fell 5% after the Scorpion report was released. The company published a brief letter stating that it “clearly (denies) the allegation of improper accounting practices” after the market close on Wednesday, without addressing the alleged defects in its EUV machines.

Severe disruptions to Lasertec’s operations could have broader implications for the semiconductor sector, but are unlikely to have serious consequences. Fellow semiconductor company KLA Corp. is reportedly planning its own EUV inspection machine, which could be something of a similar trade for major chipmakers. But any significant hit to Lasertec’s share price would likely hurt the Tokyo Stock Exchange, which has largely relied on semiconductor stocks, including Lasertec, to post big gains over the past year.

Lasertec was not immediately available for comment.

Editor’s note: This story was updated on June 6 to reflect that KLA Corp’s EUV inspection machine has not yet been commercially released and that ASML’s EUV technology does not directly compete with Lasertec’s ACTIS EUV machines.

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