A billboard displays morning trading on the first day after Lunar New Year at the Hong Kong Exchanges on February 1, 2017. Photo: Reuters/Bobby Yip

AAC Technologies, on of Apple Inc’s top 200 component suppliers, became at least the third Hong Kong listed stock in the past two months to be punished in market trading after being flagged by US-based short sellers for potential accounting irregularities.

Shares in the maker of electronic micro-components plunged as much as 13.5% in the morning session after Gotham City Research accused it of overstating profits dating back to 2014.

The Shenzhen-based company ended 10.5% lower in Hong Kong at HK$99.40, with 39.1 million shares changing hands during the sell-off, nearly five times the volume on the previous day. Gotham City said the stock could drop as far as HK$40 as more details unfold.

The rout marked a sharp reversal for AAC, which had started the day 58% up this year, compared with a 14% increase in the benchmark Hang Seng Index.

The short seller said AAC beat technology heavyweights like Apple and Google when it comes to profit margins but without any identifiable reason why.

“While some of [the] explanations may sound plausible, we see it differently,” the firm wrote. “In our opinion, the evidence supports a more nefarious explanation.”

International investors have piled into the Hong Kong market in hopes of gaining exposure to the China growth story, taking the total market capitalization up to HK$27.6 trillion (US$3.5 trillion) in April from HK$23.6 trillion a year earlier. With more investment dollars in tow, scrutiny over the exchange’s more than 2,000 listed companies has also mounted.

The market is still reeling from a one-day 85% drop in the share price of China Huishan Dairy Holdings on March 24 that erased more than US$4 billion from the company’s market value.

The mysterious plunge has been attributed to a report issued in December by Muddy Waters Research citing fraudulent reporting. The company has been ordered to halt trading by Hong Kong’s Securities and Futures Commission and only two board members remain, according to the South China Morning Post.

Increased inquiry helps promote a higher standard for accurate reporting but can also be manipulated by short sellers for their own gain.

Andrew Left, head of Citron Research, was banned from trading in Hong Kong for five years in 2016 and forced to pay back a HK$1.6 million trading profit after being found guilty by the Market Misconduct Tribunal for publishing “false or misleading information” that sparked a rapid change in Evergrande Real Estate Group’s share price in 2012.

Regardless of who benefits, sudden share price swings have put the Hong Kong market in the international spotlight this year. Fullshare Holdings declined 11.9% to HK$2.52 on April 25 after Glaucus Research Group issued a report on the company highlighting unusual trading patterns. Shares of the healthcare services and green technology solutions provider have since rebounded to HK$3.38.

AAC took in 9.7 billion yuan (US$1.4 billion) in revenues from end customers based in the US last year versus 5.8 billion yuan from Asia. It was listed as one of Apple’s 200 largest suppliers in February.

The component maker issued a statement to the Hong Kong exchange operator denying allegations made regarding its financial performance and corporate governance.

The board said it “is not aware of any information which must be announced to avoid a false market in the Company’s securities or of any inside information that needs to be disclosed.” The company is seeking legal advice and reserves the right to take legal action, it said.

It did not reply to a request for further comment.