Allegations of misleading investors made by short-seller against Oddity Tech.

• Oddity Tech has been accused of misleading investors by short seller Ningi Research in a report.
• The group, with a short position in the company, claimed that Oddity is not an online-only retailer as it has a fleet of stores.
• Ningi alleged that Oddity's sales growth is built on deceptive billing practices.

On Tuesday, a short seller accused the beauty and wellness company of misleading investors about its online retail status.

Ningi Research published a report accusing the newly-public retailer of running stores in Israel and engaging in deceptive billing practices. Ningi also has a short position in Oddity, but did not disclose the size of that position.

Oddity Tech, the parent company of Il Makiage and Spoiled Child, has disrupted the legacy beauty industry by changing the way people buy makeup online. As a purely-digital retailer, it sells directly to consumers and has experienced significant profits and growth that other businesses in the industry have struggled to achieve.

In premarket trading on Tuesday, Oddity's shares dropped more than 12%, despite low trading volume. Oddity did not respond to CNBC's request for comment.

Ningi Research alleges that Oddity's Il Makiage brand has over 40 physical stores in Israel, where the company is headquartered. The majority of Oddity's profits, Ningi claims, come from this region, not the U.S. Ningi visited the Il Makiage stores in Israel and purchased two of the company's top-selling products from different locations. According to Ningi, these stores are not part of a franchise but are owned by the company.

The short seller claims that Oddity's digital growth is due to subscriptions, which Ningi allegedly makes it difficult for consumers to cancel.

ODDITY boasts about its 100 percent repeat purchase rates, but our research reveals that customers unknowingly commit to non-cancelable plans, enabling ODDITY to recognize repeat purchases even if the customers do not desire the product.

Numerous complaints from the Better Business Bureau and social media have been made by customers who allege they were incorrectly billed.

The CEO stated that it is crucial to comprehend the extent of the allegation and that the issue is affecting only a minute fraction of the population.

More than half of Oddity's business comes from repeat customers, as previously stated by the company to CNBC.

According to Holtzman, any online company that comes close to our sales will inevitably have a certain percentage of customers who are unhappy, just like there will always be a small portion of customers who may get confused about pre-authorizations made to their cards related to Oddity's "Try before you buy" option.

"Holtzman stated that canceling the massive customer benefit due to a small fraction of users who did not fully understand how it works and were confused is not logical. Instead, they will continue to educate those users and have invested heavily in technology to support it."