On Friday, Chine MediaExpress (CCME) trading was halted. No news was given, and most people were too distracted by the ongoing horrors in Japan to pay much attention. Today, we find out why.
CCME’s CFO had resigned and its auditor, Deloitte & Touche’s Chinese affiliate, had decided that it could no longer audit CCME because it is
“no longer able to rely on the representations of management, and recommended that certain issues encountered during the audit be addressed by an independent investigation.”
This follows news that the company’s public relations firm, the Equity Group, also resigned.
From TheStreet:
China MediaExpress’s travails are the latest in a series of blowups by small-cap Chinese companies that have sought to raise capital in the United States. Dozens of others, many of which have come public on this side of the Pacific through a process called a reverse merger, have been accused of fraud, mostly by short sellers. Other investors have defended the sector, saying that the bad eggs are few and far between.
The controversy has sparked regulatory scrutiny. The SEC has been conducting a broad investigation into the Chinese reverse-merger phenomenon, examining both individual companies as well as the gatekeepers who help find and bring Chinese businesses to U.S. capital markets through the reverse-merger process, including promoters, investment bankers, auditors and law firms.
I expect we will see many more of these over the coming months. I have created a list of these companies and their auditors. There is some overlap. I am looking for clues that link the fraud between companies.
Author Disclosure: No Position
Talk to Frank about Chinese reverse mergers
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