U.S.-listed shares of Focus Media Holding Ltd plunged to multiyear lows on Monday after short-selling firm Muddy Waters accused the company of "significant overstatement of the number of screens in its LCD network," among other charges.
Muddy Waters, which started coverage of the China-based display advertising company with a "strong sell" rating, said Focus Media has been "fraudulently overstating" the number of screens in its LCD advertising display network by about 50 percent.
Focus Media, which has no U.S. offices, didn't immediately return an emailed request for comment and no one answered when Reuters attempted to reach a representative in the Shanghai office by phone.
The stock was down 43 percent on its highest-ever volume, and the extreme volatility has caused it to be halted several times. It hit a session low of $8.79, its lowest price since September 2009.
The share decline is the latest in a string of influential bearish notes from Muddy Waters, as well as its director of research, Carson Block, one of the most prominent short-sellers of Chinese companies listed on North American exchanges. Block was unavailable for comment on Monday.
Focus Media had a market cap of about $3.41 billion based on its Friday closing price, making it one of the larger targets of short-sellers who look at North American-listed Chinese companies.
Muddy Waters said Focus Media reported in regulatory filings that it has 178,382 screens, while according to its media kit the company has fewer than 120,000. The firm also wrote that the company has "significantly and deliberately" overpaid for deals and has written down $1.1 billion out of $1.6 billion in acquisitions since 2005, exceeding the company's enterprise value by a third.
"FMCN has written at least 21 acquisitions down to zero and then given them away for no consideration ... as a result FMCN has an accumulated deficit of $437.4 million," Muddy Waters wrote in a note.
Muddy Waters shorts the stocks it covers and profits off any share decline. Of the six companies Block has written on before Focus Media, only two continue to trade: Oriental Paper Inc and Spreadtrum Communications.
In June, the firm accused Canada's Sino-Forest Corp of fraud. Investors lost billions of dollars and regulators and law enforcement officials in Canada are investigating the company.
The short-seller said Focus Media's overpayments include fraudulently booking at least six mobile handset advertising acquisitions that it never made.
"Insiders have used Focus Media as their counterparty in trading in and out of its subsidiary Allyes, with several individuals earning a total of at least $70.1 million, while shareholders lost $159.6 million," the note read.
(Reporting by Soham Chatterjee in Bangalore, additional reporting by Ryan Vlastelica in New York; Editing by Maju Samuel and Kenneth Barry)