More Chinese Reverse Merger Drama (CCME)

Two research reports have levied massive fraud accusations against China MediaExpress

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have both claimed the stock is a massive pump and dump stock scheme looking to enrich management. China MediaExpress has categorized these allegations as “misleading.” CEO Zheng Cheng accuses the research houses as short sellers. “We have every reason to believe that each of these 'researchers' is actually a short seller, and each stands to make money when they succeed in driving down the price of our stock,” he said in a statement. Citron Research's report calls into question the legitimacy of China MediaExpress's financial reports. The company claims to have grown profit from $2M to $85M from revenues of $200M. The company reported generating a cash flow of $95M after all CAPEX and acquisitions over the last eight quarters. According to the report, “the ROI would be one of the highest in the world, and a complete outlier in the Chinese advertising market generating even more profit than giant Focus Media, and outpacing all of their competition by a landslide, despite their smaller footprint.” However, Citron's report alleges the company has no visibility in China. China MediaExpress has not been mentioned by any Chinese media outlet in articles about public media operators, which is seemingly China MediaExpress's core business. The Citron report also brings attention to lack of any substantial information on China MediaExpress's website. The report out by Muddy Waters concurred with the Citron report and added the revenue of 2009 was only $17M instead of the $95.9M reported by China MediaExpress. Particularly, Muddy Waters alleges that none of the major media buyers in China that Muddy Waters spoke to have even heard of the company. China MediaExpress management owns 54.1% of the shares outstanding, which at the current market value is $312M. Muddy Waters concludes the fraud is designed to enrich management through earn-outs and stock sales. China MediaExpress's shares fell sharply on the day the reports were made public. The stock opened at $17.01 on February 3 and closed at $11.09. According to a report by

, Robbins Umeda LLP, a shareholder rights litigation firm, has opened an investigation into China MediaExpress.