MediaExpress denies inflating figures

China MediaExpress Holdings Inc, which displays video advertisements on buses in China and plunged 33 percent in US stock trading on Thursday, said three companies were wrong in saying it deceived investors with its financial reports.
The Hong Kong-based China MediaExpress "categorically denies the allegations" made in three reports released in the past week, according to a letter from Chief Executive Officer Zheng Cheng posted on the company's website on Monday. The stock fell by a record amount on Thursday after Muddy Waters Research said the company inflates sales and profit figures. Citron Research and Bronte Capital have also criticized China MediaExpress.
"We have every reason to believe that each of these 'researchers' is actually a short seller, and each stands to make money - at the expense of our stockholders - when they succeed in driving down the price of our stock," Cheng said.
Muddy Waters Research, Citron Research and Bronte Capital say they may be betting against stocks of the companies they cover, according to disclaimers on their websites. A voice mail message left for Carson Block of Muddy Waters Research and two phone calls to John Hempton of Bronte Capital weren't returned.
"The company should become more transparent with its filings, which means telling people who their customers are, where the revenue is coming from," said Andrew Lest, the publisher of Citron Research. "A company doesn't mind when people who own the stock write favorably about them, but if you short the stock they complain. In the end, the information is the information."
Deloitte Touche Tohmatsu International audited the company's 2009 financial results, according to China MediaExpress's most recent annual report.
"The company is strong and doing well," Cheng said on Monday. "Its revenues and cash position have been audited by reputable and well-known auditors who have confirmed both."
Muddy Waters Research said the company's video ad system is installed in less than half as many buses as China MediaExpress says. Cheng denied that, saying the spreadsheet Muddy Waters Research used in its report to substantiate that claim wasn't produced by his company.
China MediaExpress began trading in the United States following a 2009 reverse merger with TM Entertainment & Media Inc, a so-called blank check company. In a reverse merger, a closely held company buys a publicly traded shell company and retains the US listing as its own instead of extinguishing it, as usually happens in takeovers.
There are about 370 Chinese companies that have obtained US listings since 2004 without going through the rigors of initial public offerings. Reverse-merger companies with foreign management have come under increased investor and regulatory scrutiny, Bloomberg Businessweek reported last month.
China MediaExpress "has been a battleground stock for some time between longs and shorts," Eric Jackson, founding and managing member of the Naples, Florida-based hedge fund Ironfire Capital LLC, said last week. "I have heard countless complaints by shorts against the company since early last year. With all the focus on reverse mergers of late, it's probably not a surprise that several shorts have gone after them now."
Short selling, or betting against China MediaExpress shares, has risen to a record 11 percent of outstanding shares, according to data compiled by Data Explorers, a New York-based research company. That compares with 5.1 percent on Dec 31.
The stock fell 5.4 percent to $13.14 at 4 pm on Monday in New York.
Source:China Daily