Xinhua Finance Media Under More Fire (XFML)

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Xinhua Finance Media (XFML-NASDAQ) has found itself in a peculiar situation.  After a botched IPO, which was previously indicated as “near-hot” and a subsequent flameout, has come under intense fire.  Last week the company lost proxy firm Glass Lewis research employees because of disclosure questions over whether the company withheld unfavorable information about its former CFO Shelly Singhal (who previously resigned from the board). 

There are also lawsuits against the company now from shareholders and the first lawsuit prompted Moody’s last week to lower the company’s rating to “Negative.”  There were also two more separate lawsuits filed between Friday and Monday over the poor performing IPO.

The company came under additional fore last week from the WSJ and then this weekend by a Barron’s article.  The article outlines the “questionable past” of Singhal and outlines some lack of oversight inside Xinhua Finance Ltd. (XHFNY-NASDAQ/OTC) and Xinhua Finance Media (XFML-NASDAQ).  The article in Barron’s had nothing positive to say against the company.  Much of the article deals with issues that are not current, although it is obvious that the liabilities of the company are going to be higher than it originally thought.  There is still the question that rarely comes up, but needs to be addressed: “How objective are media outlets when they are covering a story on a competing media outlet, particularly when the competing media outlet is either legally barred from covering a story on itself or if it knows that it should not cover a story on itself?” 

Could you imagine if a brokerage firm analyst at Merrill Lynch was asked to cover Merrill lynch in the same manner that the coverage is given to competing firms?  There is a problem with media companies being fully public entities, and this is only the start or at least only one of many issues in this sector.

This situation in Xinhua looks like there is going to be more pain than pleasure, and it is very possible that the company may have to choose the route of saying nothing.  That hurts shareholders if the company cannot publicly try to defend itself, but it also keeps the chances of further liability lower in the future if it is every discovered that errors and omissions were made.  This one is far from being over and it is obvious that shares will be indicated lower based on the tone of the article in Barron’s.

Jon C. Ogg
May 29, 2007

Jon Ogg can be reached at jonogg@247wallst.com; he does not own securities in the companies he covers.