Sohu Shares Plunged: What You Need to Know

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of Sohu (Nasdaq: SOHU  ) got crushed today, down by 11% at the low, after reports emerged that the United States Department of Justice is looking into accounting practices at numerous Chinese companies that are listed stateside.

So what: The sector-wide selloff also rocked momentum stocks like Baidu (Nasdaq: BIDU  ) and SINA (Nasdaq: SINA  ) as shareholders assumed the worst, although no specific company was mentioned in the reports. U.S. regulators have stepped up the investigations over recent controversy about bookkeeping practices, particularly those related to companies that get listed through "reverse mergers."

Now what: A lot of the skepticism surrounding some of these companies is very justified, but many hastily categorize them together. U.S. regulators face some challenges when digging for answers from Chinese companies because the Chinese government prohibits inspecting auditors based on China, although regulators in both countries are beginning to cooperate more during inspections for the safety of public investors. I happen to think Sohu is getting punished unfairly here, and I've always liked the company's prospects with the presumption that its books are intact.

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