Mr. Dumas Accounting Award Winner: China MediaExpress (CCME)

Jon C. Ogg

The world of reverse mergers from questionable Chinese companies is about to come under even more scrutiny.  China MediaExpress Holdings, Inc. (NASDAQ: CCME) has been halted for news pending for a while, and the news is pretty atrocious. The company claims to be China’s largest TV advertising operator on inter-city and airport express buses, and it had already been under pressure from recent research reports calling it overvalued.  The news released by the firm today is that its registered independent accounting firm, Deloitte Touche Tohmatsu, has formally resigned as of March 11, 2011.

As you’d expect, there’s more behind the red door.  After the DTT resignation letter, the company received notification that Jacky Lam would be resigning from his position as Chief Financial Officer and as a director of the company effective immediately.

Now the company has said it will delay its fourth quarter earnings release.  More importantly came the admission that its will not file its December 31, 2010 Annual Report in time for its original March 16, 2011 due date.

What the Deloitte letter said was that it could no longer rely upon on the representations of management.  It further went out and noted that certain issues encountered during the audit should be addressed by an independent investigation.  Investors better get ready for the dreaded restatements going backwards…. DTT’s letter said these issues “may have adverse implications for the prior periods’ financial reports and that, in their view, further investigatory procedures would be required to determine whether the prior periods’ financial reports are reliable.”

The company’s board of directors met over the weekend and confirmed that it will authorize an independent committee of the board to launch an investigation with respect to the concerns brought up.  The company will engage a forensic accounting firm and independent legal advisors, and will also start a new CFO search and hire a new independent auditor.

Here is what investors will also hate right here.  It is now expected that both earnings and the annual report could be delayed for at least a month “to permit the completion of all necessary fieldwork of the new independent auditor and to complete the independent investigation of several potential issues raised in the DTT resignation letter.”

Now NASDAQ has its halt status as requesting more information.  Shares closed at $11.88 and the 52-week range is $7.58 to $23.97.

Thomson Reuters has estimates of $215.15 million in revenues and earnings of $2.26 EPS for what was supposed to be 2010.   There were only two estimates, so keep that in mind.  Either way, this sounds like a situation where fraud or severe accounting lapses may come into play.

If you get a call from a person named Jacky Lam looking for a job, it might not be advised.  Jacky Lam and China MediaExpress just won the Mr. Dumas Accounting Award.