The Final Nail in the China MediaExpress Holdings Coffin

This article is from Stone Street Advisors

In what I think is one of the best investigative works I've ever read, Roddy Boyd went to China to meet with the CFO of CCME, but his meeting was cancelled. 
He and his experienced Chinese investor friend decided to visit CCME's
main office without notice, anyway.  What Roddy saw I can only describe
as worse than even I suspected.  It appears the company is 100%
absolutely positively a complete and utter fraud, top to bottom, inside
& out. 

If
there was any audit done at all, it looks like this is a classic case
of the coach tipping-off his player when the "piss man" is coming to
test him for performance-enhancing drugs.  That is, at best, management
defrauded Deloitte, and at worse, Deloitte completely failed their
professional and legal responsibilities and/or was complicit in the
fraud.

I cannot possibly see CCME management being able to refute
Roddy's conclusions and observations.  Roddy tells me he has no
position in the company, so I don't think anyone can accuse him of
being just another short-seller trying to pump his position.

Barring
some seemingly impossible refutation of Roddy's account and analysis,
I'm ready to call this game over.  CCME is a massive and entirely
obvious fraud.

It seems CV Starr, despite having the authority (if I'm reading their 10-k correctly)
to put one of its representatives on CCME's Board and to decide which
committee that member joins, didn't do the sort of basic due diligence
such a large and supposedly sophisticated investor should.

Their
investment lets them put-back their shares to certain other
shareholders (I'd assume senior management, mostly the CEO)  if CCME
fails to hit financial performance targets, and if those shareholders
do not or will not comply with the exercize of those put-back right
rights, Starr can sell CCME capital stock.  This would be a prudent
investment approach, but as Roddy put it in conversation I had with him
earlier:

Yes. the make good is pretty compelling as
far as those investments go. But: they have no real business. So they
are long a call on a piece of crap. They have no contracts or anything.
They have an IP, relationship enterprise that has no IP or
relationships. A total fraud.

Additionally, if you look at CCME's structure and nature of
relationships and fund flows between the subsidiaries/firms, I can't
see any way this doesn't end in tears for Starr and every other long. 

The
CEO owns 80% of the operating entity, Fujian Fenzhong Media Co, but a lower % of CCME shares.  The only way money flows to CCME from the
operating entity is through what seems to be mostly questionable
"contractual arrangements" (see page 22/23 of the 10-k) between the
entities.  Does no one else think it was a red or at the very-least orange flag that the CEO owns almost all of the operating entity yet much less of the supposedly
effective managing entity?  Where do you think the money (if any) is going, to CCME shareholders or to the CEO/CFO?  Sure, the "arrangements" involve the CEO giving up all voting power to Fujian Express, but there's still some questions there, like are these arrangements actually being honored?  I'm inclined to think not, considering Roddy's report.

I welcome CCME's
response to Roddy's excellent work and I STRONGLY recommend you read
his entire article in the mean-time.  Great job Roddy, thanks for
rolling up your sleeves and doing some real due diligence!

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Halted Thursday.... No trade here