CCME: Irrefutable Evidence of Fraud

Published: March 2, 2011

Muddy Waters, LLC has amassed irrefutable evidence that China MediaExpress Holdings, Inc. (“CCME”) is a substantial fraud, and that management is engaging in a cover-up replete with further dissemination of fraudulent information. In light of the nature of the evidence, we believe that a de-listing from NASDAQ is not improbable; further, we believe that management stands to lose additional credibility. We therefore reduce our estimated value by one-third to $3.54.

We present a recorded telephone conversation that contains an admission that CCME is engaging in securities fraud. The conversation took place on February 23rd between the CCME salesperson who provided us with the advertiser kit we cited in our February 3, 2011 report (the “Report”) and one of our analysts. The CCME salesperson initiated the conversation without notice in response to investigative actions taken by CCME’s auditor, Deloitte Touche Tohmatsu (“Deloitte”). During the conversation, the salesperson stated that:

• CCME has been doubling the number of buses on which it has installed equipment for purposes of its SEC filings; and
• CCME replaced recently replaced the salesperson’s hard drive due to the increased scrutiny.

The recording with subtitles is available at: http://www.youtube.com/watch?v=cLAm-dJh2fI

We document that in the course of rebutting our Report, Chairman Cheng provided fabricated information. In Chairman Cheng’s February 7, 2011 letter (the “Chairman’s Letter”), Chairman Cheng challenged our assertion that CCME’s largest purported contract does not exist. His proof includes an “excerpt” of buses he claims are covered by the disputed contract. The excerpt contains license plate numbers of three buses. We have official documentation (shown in Appendix A) from the Shanghai Public Security Bureau Traffic Management Administrator (the “Traffic Administrator”) that shows these three license plates numbers are fabricated.

We present the sales presentation we received in January from the aforementioned salesperson (the “Sales Presentation”) that shows CCME has fewer than half of the buses it claims. The Sales Presentation (Appendix B), which shows CCME’s buses by province and city, corroborates the following facts we presented in our earlier Report:

• CCME has fewer than half of the buses it claims; and
• its largest purported contract (with Shanghai Ba Shi for 1,892 buses) does not exist. The number of buses for Shanghai-based operators in the presentation matches the number in the spreadsheet we received – 296.

We present a mini-documentary of the largest purported operator – Shanghai Ba Shi – specifically focusing on its inter-city buses and drivers. The film shows that CCME’s hardware is not installed on the buses, despite CCME’s claim to have had hardware on these buses since at least mid-2008.

The video is available at: http://www.youtube.com/watch?v=-COZ5l9ayzM

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