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Focus Media Shares Tumble after Muddy Water Alleges Fraud (FMCN)

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Focus Media Holding Limited (ADR) (NASDAQ: FMCN) shares are sinking in trading today after Muddy Waters Research, an investment research and short selling firm, issued a report on the China-based company alleging fraud.

Muddy Waters has alleged that Focus Media, which operates a digital media network, has been committing fraud by overstating the number of screens in its LCD display advertising network by about 50%. Muddy Waters questioned whether the company’s core LCD business is viable and issued a Strong Sell rating on the stock.

Carson Block, who is the director of research at Muddy Waters, alleges that Focus Media has significantly and deliberately overpaid for acquisitions. Block also alleges that the company has claimed to acquired, write down and dispose of companies that it never actually purchased. He added that investors should be concerned about where the cash involved in these transactions actually moved.


The Muddy Waters report also notes that share sales by company insiders have netted at least $1.7 billion since Focus Media went public in 2005.

Block concludes that Focus Media is a highly troubled enterprise that is run solely for the benefit of insiders.

The allegations have once again thrown the spotlight on Chinese companies trading on North American exchanges. A number of Chinese companies trading on North American exchanges, this year, have faced allegations from short sellers of conducting fraudulent activities and misleading investors. Earlier this year, Muddy Waters had alleged that Sino-Forest, a Chinese timber company, overstated its assets. Sino-Forest shares plunged almost 80% following the report from Muddy Waters.

Focus Media shares are also sinking following similar allegations from Muddy Waters. At last check, the stock was down 43.65% to $14.37. Earlier in the day in fell to a 52-week low of $8.79.

 

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edliston
Post Written By: Ed Liston

Ed Liston is a senior contributing editor at TheStockMarketWatch.com. An active market watcher and investor, Ed guides an independent team of experienced analysts and writes for multiple stock trader publications. He is widely quoted in various financial publications on the Internet. When Ed is not writing about stocks, investing in stocks, talking about stocks, or otherwise doing something stock related, he likes to go sailing and fishing in his yacht.


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Ed Liston

Ed Liston is a senior contributing editor at TheStockMarketWatch.com. An active market watcher and investor, Ed guides an independent team of experienced analysts and writes for multiple stock trader publications. He is widely quoted in various financial publications on the Internet. When Ed is not writing about stocks, investing in stocks, talking about stocks, or otherwise doing something stock related, he likes to go sailing and fishing.

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