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China’s Focus Media Group Accused Of Fraud

‘Focus Media Sinks in Muddy Waters’ [1] wrote the Wall Street Journal, ‘Focus Media Shares Crater; Analyst Alleges Fraud [2]‘ wrote Forbes, ‘Buying Focus Media on Goldman Sachs Advice Lost Owners 66% [3]‘ wrote Bloomberg (there are many more) and there were even regular TV updates on CNBC.

Well respected research firm Muddy Waters LLC [4] claimed Monday that: –

    [5]

    21 November 2011 Share Tradiing

  1. A “significant overstatement” of the number of screens in its LCD network
  2. ”Olympus-style acquisition overpayments”, i.e. may have overpaid for takeovers to mask losses

It was also pointed out that Focus Media ‘insiders’ may have sold at least USD 1.7 billion worth of stock since its 2005 IPO.

At one point on Monday, shares in Focus Media Holding Limited [6] (Nasdaq: FMCN) fell over 60% in trading. At the close of trading (on Monday) more than USD 1.36 billion of Focus Media’s value had been wiped out.

I know it is easy to be wise after the event but there is a reason why the Greater Fool Theory [7] has never been proven wrong.

With keywords like ‘China’ and buzzwords ‘digital’, ‘advertising’ there were many who (literally) bought in.

However many screens they are (finally) proven to have or have not, it will be interesting to see how they count them all as the whole network is run by Sneakernet [8].

If we remember correctly their CFO was a speaker (via the web, not in person) at one of the Digital Signage Investor Conferences many years back (at least 4 years) and we don’t remember him coming across particularly well.