China MediaExpress Holdings: Critics and Short Sellers Were Right!

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In February, I wrote about China MediaExpress Holdings Inc. (NASDAQ:CCME) and several fraud allegations that had surfaced via researchers at Muddy Waters and Citron Research. After looking at the allegations and the support (or lack thereof), my conclusion was that there was something wrong at the company. I wrote that even if some of the allegations were false or exaggerated, there were just too many unanswered questions and too many red flags of fraud.

I was attacked here by supporters of CCME. No bit of logic or common sense could sway the fans. Their arguments did not hold water. The main arguments were that I hadn’t done any due diligence on CCME (I had only looked at the work of several others), that auditors from Deloitte Touche Tohmatsu had verified the numbers (At least someone out there knows how unreliable audits are when it comes to fraud, though.), that due diligence was performed by Global Hunter Securities, and that Hank Greenberg’s Starr Investments put many millions into CCME. Surely all of these things meant that the company and its reported revenues and profits were legitimate? Continue reading

More Evidence of Fraud at China MediaExpress Holdings

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UPDATE: In March 2011, CFO Jacky Lam of China Media Express and the auditors (Deloitte) resigned. Deloitte said they could no longer rely on the representations of management, and they suggested an investigation was in order. Ping Luo, the analyst from Global Hunter who gave CCME rave reviews resigned. Maurice Greenberg’s Starr Investments sued CCME for fraudulently inducing it to invest $13.5 million. The stock was delisted from the NASDAQ in May 2011.

Deloitte raised the following issues: questionable authenticity of bank statements, supicioius bank confirmation procedures, existence of advertisers/customers, undisclosed bank accounts and bank loans, financial filings with the State Administration of Industry and Commerce differing from information provided to auditors, questionable authenticity of tax filing documents, cash payments to employees, and double counting of buses.

Last month, I wrote a piece on China MediaExpress Holdings (NASDAQ: CCME) and the allegations of fraud by researchers at Citron Research and Muddy Waters. The story grew quickly with the reaction of the company and its supporters. China Media Express Holdings responded to the allegations with a letter posted on their website, but the letter failed to definitively address several of the issues. The supporters of CCME were rabid, attacking anyone who would question the company.

Citron and Muddy Waters made many accusations, but the most concerning items included: Continue reading

Update on Fraud Allegations at China MediaExpress Holdings

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UPDATE: In March 2011, CFO Jacky Lam of China Media Express and the auditors (Deloitte) resigned. Deloitte said they could no longer rely on the representations of management, and they suggested an investigation was in order. Ping Luo, the analyst from Global Hunter who gave CCME rave reviews resigned. Maurice Greenberg’s Starr Investments sued CCME for fraudulently inducing it to invest $13.5 million. The stock was delisted from the NASDAQ in May 2011.

Deloitte raised the following issues: questionable authenticity of bank statements, supicioius bank confirmation procedures, existence of advertisers/customers, undisclosed bank accounts and bank loans, financial filings with the State Administration of Industry and Commerce differing from information provided to auditors, questionable authenticity of tax filing documents, cash payments to employees, and double counting of buses.

A couple of weeks ago I posted an article examining some of the allegations against China MediaExpress Holdings (NASDAQ:CCME) alleging that management was committing fraud on the investing public. I also discussed the company’s response, as well as the response of writers who are supporters of CCME.

The allegations that concerned me most were: Continue reading

Failing to Find Fraud When Auditing Cash

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UPDATE: In March 2011, CFO Jacky Lam of China Media Express and the auditors (Deloitte) resigned. Deloitte said they could no longer rely on the representations of management, and they suggested an investigation was in order. Ping Luo, the analyst from Global Hunter who gave CCME rave reviews resigned. Maurice Greenberg’s Starr Investments sued CCME for fraudulently inducing it to invest $13.5 million. The stock was delisted from the NASDAQ in May 2011.

Deloitte raised the following issues: questionable authenticity of bank statements, supicioius bank confirmation procedures, existence of advertisers/customers, undisclosed bank accounts and bank loans, financial filings with the State Administration of Industry and Commerce differing from information provided to auditors, questionable authenticity of tax filing documents, cash payments to employees, and double counting of buses.

Earlier this week, I posted an article about China MediaExpress Holdings (CCME) and the allegations of fraud that were leveled recently against the company. I took a look at some of the commentary out there, asked questions and made comments, and ultimately decided that I am concerned about the potential that the company is a fraud.

Supporters of CCME have questioned the reliability and authenticity of the fraud allegations, and have provided evidence of their own about why the critics of CCME should not be trusted. I haven’t looked at all of those counter arguments, but I have looked at some of them, and some appear credible. I do not discount the due diligence that has been done by a number of investors. I am sure that they found plenty of evidence to suggest that the company is completely legitimate and their numbers are reported accurately.

However, I still believe that something is wrong at the company.

Here’s why: Even if most of the fraud allegations are either improper or incorrect, I believe that at least some of them are likely to be true. Even if one or two or three of the fraud allegations are true, the company has a serious problem. In my experience, lying and fraud do not occur in a vacuum. When small lies or frauds are found, very often they are the tip of the iceberg and more dishonesty exists. Continue reading

China MediaExpress: Massive Fraud or Victim of Short Sellers?

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UPDATE: In March 2011, CFO Jacky Lam of China Media Express and the auditors (Deloitte) resigned. Deloitte said they could no longer rely on the representations of management, and they suggested an investigation was in order. Ping Luo, the analyst from Global Hunter who gave CCME rave reviews resigned. Maurice Greenberg’s Starr Investments sued CCME for fraudulently inducing it to invest $13.5 million. The stock was delisted from the NASDAQ in May 2011.

Deloitte raised the following issues: questionable authenticity of bank statements, supicioius bank confirmation procedures, existence of advertisers/customers, undisclosed bank accounts and bank loans, financial filings with the State Administration of Industry and Commerce differing from information provided to auditors, questionable authenticity of tax filing documents, cash payments to employees, and double counting of buses.

As I have found out all too well in the last two years, those who are critical of public companies risk retaliation. Retailing failure Overstock.com (NASDAQ:OSTK) has spent years perfecting their methods of stalking and intimidating anyone who dares to criticize their perpetual losses, their wackadoo CEO Patrick Byrne, the gross incompetence of management, and (most importantly) their fraudulent financial reporting.

I have a particular interest in multi-level marketing (MLM), and in publicly voicing my dislike of this bogus “business model,” have been subjected to retaliation from the companies themselves as well as individuals associated with the companies. The most vicious attack is by Medifast and its MLM division, Take Shape For Life (TSFL). I first became aware of Medifast via a small project for a client, but became interested in the company and how it was achieving extraordinarily good financial results. Continue reading