Thursday, June 20, 2013
The SEC charged a China-based company and its CEO with fraudulently misleading investors about its financial condition by touting cash balances that were millions of dollars higher than actual amounts. The SEC alleges that China MediaExpress, which purports to operate a television advertising network on inter-city and airport express buses in the People's Republic of China, began falsely reporting significant increases in its business operations, financial condition, and profits almost immediately upon becoming a publicly-traded company through a reverse merger in 2009. In addition to grossly overstating its cash balances, China MediaExpress also falsely stated in public filings and press releases that two multi-national corporations were its advertising clients when, in fact, they were not. The company's chairman and CEO Zheng Cheng signed the public filings and attested to their accuracy. After suspicions of fraud were raised by the company's external auditor and an internal investigation ensued, Zheng attempted to pay off a senior accountant assigned to the case.
According to the SEC's complaint, after China Media materially misrepresented its financial condition, its stock price tripled to more than $20 per share.