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

Short-seller Scorpion Capital is taking aim at one of the biggest-trading stocks in the world. The $23 billion Japanese semiconductor equipment manufacturer Lasertec has ridden the AI wave, with more than a 25% bump to its share price since last fall—but Scorpion is accusing the company of being a “ticking time bomb” and “colossal fraud” that’s been faking its financials.

Lasertec is one of dozens of companies that have seen their valuations skyrocket due to demand from AI developers, who have piled into manufacturers behind the global supply chain providing the advanced semiconductors and massive quantities of energy needed to power AI models.

Lasertec’s signature product is its ACTIS EUV inspection machine, used to detect manufacturing flaws in cutting-edge semiconductors—but Scorpion is claiming that the technology, along with Lasertec’s financials, are a sham.

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

Lasertec’s massive stock run-up has made it a rising star on the Tokyo Stock Exchange: The company’s shares traded for pennies as recently as 2018, before a six-year tear that saw its share price increase more than 2,000% as investors chased returns associated with its role in the ultrahot semiconductor manufacturing industry.

EUV inspection machines are a must-have for large-scale manufacturers including TSMC, Intel, and Samsung, which depend on the complex and extremely expensive devices for quality control. Lasertec’s main competitor in the EUV space is Dutch firm ASML, which has a near-monopoly on the equipment needed to etch chip designs onto wafers and charges $380 million apiece for its top-of-the-line machines. Lasertec has been producing EUV quality control machines since 2017.

Scorpion investigators visited Lasertec’s production facilities and reported that the actual state of the site is far from what Lasertec has advertised. The firm, founded by former Carl Icahn acolyte Kir Kahlon, wrote that the company’s new Yokohama “innovation park” is actually “a generally deserted facility with no R&D or production activity.” Scorpion also cited interviews with leaders of Lasertec’s main customers, who Scorpion claims are “exasperated and furious to the point that TSMC has ceased buying [Lasertec’s] EUV machines.”

Scorpion also pointed to Lasertec’s accounting practices. The short-seller alleges the company has routinely overstated revenue and earnings to investors, as well as manipulated its inventory numbers.

Lasertec’s stock dropped 5% after Scorpion’s report was released. The company issued a brief letter stating that it “clearly [denies] the allegation of improper accounting practices” after market close on Wednesday, without elaborating on the alleged flaws in its EUV machines.

Severe disruptions to Lasertec’s business could send ripples across the semiconductor sector more broadly, but would likely not have severe impacts. Lasertec competitor KLAC Corp. sells its own EUV inspection machines, which would be a roughly like-for-like swap for major chipmakers. But any significant knock to Lasertec’s share price would likely hurt the Tokyo Stock Exchange, which has largely depended on semiconductor stocks including Lasertec to fuel big gains over the past year.

Lasertec could not be immediately reached for comment.

This story was originally featured on Fortune.com