Shares of China MediaExpress, which operates a television advertising network on buses in China and was created through a reverse merger, were climbing nearly 11% to $15.34 after Cheng wrote in a letter to shareholders that short sellers "timed and coordinated their efforts" in "reckless and baseless attacks" against the company. Short sellers make money from declines in share prices.
Last week, Muddy Waters Research accused China MediaExpress of "engaging in a massive 'pump-and-dump' scheme whereby it significantly inflates revenue and profits in order to enrich management through earn-outs and stock sales." Citron Research and Bronte Capital also released similarly bearish reports on China MediaExpress on Jan. 31 and Feb. 1, respectively.
Muddy Waters says it has a short position in the stock, and therefore stands to realize significant gains in the event that the price of stock declines.
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