{"id":5618,"date":"2011-02-09T05:00:52","date_gmt":"2011-02-09T11:00:52","guid":{"rendered":"http:\/\/www.sequenceinc.com\/fraudfiles\/?p=5618"},"modified":"2013-10-01T17:04:22","modified_gmt":"2013-10-01T22:04:22","slug":"china-mediaexpress-massive-fraud-or-victim-of-short-sellers","status":"publish","type":"post","link":"https:\/\/www.sequenceinc.com\/fraudfiles\/china-mediaexpress-massive-fraud-or-victim-of-short-sellers\/","title":{"rendered":"China MediaExpress: Massive Fraud or Victim of Short Sellers?"},"content":{"rendered":"

UPDATE: In March 2011, CFO Jacky Lam of China Media Express and the auditors (Deloitte) resigned<\/a>. 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<\/a>. Maurice Greenberg’s Starr Investments sued CCME for fraudulently inducing it to invest $13.5 million<\/a>. The stock was delisted from the NASDAQ in May 2011<\/a>.<\/em><\/p>\n

Deloitte raised the following issues<\/a>: 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. <\/em><\/p>\n

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<\/a>, their wackadoo CEO Patrick Byrne<\/a>, the gross incompetence of management<\/a>, and (most importantly) their fraudulent financial reporting<\/a>.<\/p>\n

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<\/a> and how it was achieving extraordinarily good financial results<\/a>.<\/p>\n

For criticizing Medifast and TSFL (because of their use of multi-level marketing, which I believe is an abusive model designed in such a way that 95% to 99% of participants lose money<\/a>), I got sued for $270 million<\/a>. But the fun doesn’t stop there. Throughout the lawsuit, Medifast and its lawyers have been blatantly dishonest<\/a> about what I have written about the company, and have made unfounded disgustingly false allegations about me, my company, and my work. All this is being done to damage my professional reputation, trash my business, and scare anyone else who might even think about criticizing Medifast and Take Shape For Life<\/a>.<\/p>\n

The latest company to threaten critics is China MediaExpress<\/a> (NASDAQ:CCME).\u00a0 Last week the company was accused of being a fraud by both Citron Research<\/a> and Muddy Waters<\/a>. The company has responded by claiming that these research companies are simply short sellers who have a vested interest in the stock price going on, and that they are considering their options. (That sounds like a threat of litigation to me.) Let’s take a look at what is being written about China Media Express, and whether those saying bad things about the company deserve the criticism and threat of litigation.<\/p>\n

Citron Research Report<\/strong><\/p>\n

Citron begins its report on China Media Express with a simple idea<\/a>: If it sounds too good to be true, it is. They go on to lay out a case that if the business of CCME was truly as they are reporting it, this would be simple to verify. After all, the business is purported to be the largest television advertising operator on inter-city and airport express buses in China.<\/p>\n

But the company’s numbers don’t make sense. It has spent little on infrastructure, yet allegedly has grown profits from $2 million to an expected $85 million (on revenue of $200 million). Citron says that makes no sense given the Chinese advertising market. Even more important, says Citron, is the fact that “no one in China has ever heard of them.”<\/p>\n

Citron then goes on to detail how using Google or Baidu to find information on CCME’s operating company yields no results. It makes no sense that a highly profitable advertising company (we’re talking off the charts profitable compared to the industry, apparently) is nowhere to be found in the major search engines.\u00a0 Citron continues with a listing of various reports on outdoor media companies, and cites CCME’s obvious absence on the lists.<\/p>\n

The CCME website is curiously short on actual information about the company’s operations and partners. It is alleged by Citron that the real business of CCME is pushing stock, rather than conducting business in its industry. They give more information on how CCME lacks substance, and then state:<\/p>\n

In preparing this report, Citron has come across a plethora of information pointing to CCME being a fraud. \u00a0 These include but are not limited to:\u00a0 SAIC documents, Credit Rating Agency Documents, fake awards and accolades, quotes from industry professionals, and more financial analysis than this company even deserves.\u00a0 The purpose of this report was to look at CCME using simple common sense to understand that the company does not exist at the scale that they are reporting to the investing public. \u00a0We are not saying that they do not operate any buses, but if you believe that the company operations are truly reflected, or even close to their stated financial disclosures, than you must go to Taco Bell for some filet mignon.<\/p><\/blockquote>\n

Muddy Waters Report<\/strong><\/p>\n

The Muddy Waters Report on China MediaExpress<\/a> is not flattering either. The allegations are harsh and include:<\/p>\n