What happened

Shares of Uxin (UXIN 3.39%) climbed by more than 40% on Wednesday morning after the Chinese online used-car dealer came out with a strong statement refuting claims made by a short-seller a day prior. Uxin shares were down more than 50% at one point on Tuesday before finishing down 36%, but rebounded once Uxin was able to tell its side of the story.

So what

Uxin was the subject of a eviscerating report by J Capital Research analyst Anne Stevenson-Yang on Tuesday that claimed the company exaggerated the volume of auto sales it processes by as much as 40% and that founder and CEO Kun Dai was making false statements about the business' strength while taking cash out of the business. Stevenson-Yang urged investors to "race for the exits," claiming "Uxin is so dishonest that we would not know how to attach a valuation."

A car dealer hands the keys to a customer.

Image source: Getty Images.

The company fired back overnight, U.S. time, saying the report "contains errors of facts, misleading speculations and malicious interpretations of events." Uxin said it "firmly denies the baseless allegations that it has falsified any sales data," and said founder Dai has "never voluntarily sold any shares in Uxin as alleged in the report."

Uxin said it is reviewing the report and will provide additional information on the allegations as appropriate, saying it "strongly condemns the publishing of false and misleading information."

Now what

Right or wrong, J Capital's report does highlight the sometimes-murky nature of investing in Chinese companies. Taken at its word, the company appears to be moving in the right direction, reporting fourth-quarter results that show progress toward profitability, and earlier this year securing a partnership with Chinese e-commerce giant Alibaba.

Of course, J Capital's central question in its report is whether investors can take Uxin at its word when it comes to its financial statements. Based on what we know, I see no reason for investors with a high tolerance for risk to run for the exits, as J Capital suggests, but companies like Uxin should be nothing more than a small piece of a diversified portfolio.

The battle is likely to continue for a while, and if the first salvos are any indication, investors should expect more dramatic price swings in the future. For Uxin, the only sure thing right now is continued volatility.