BOSTON (TheStreet) -- China MediaExpress (CCME) became the latest Chinese reverse merger to get slammed by fraud accusations, with shares plunging more than 30% Thursday on a short- seller's research report.

China MediaExpress

shares fell as low as $10.31 Thursday after Muddy Waters Research initiated coverage on the company with a "strong sell" rating and estimated value of $5.28, a 68% discount to Wednesday's closing price.

Muddy Waters accuses 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."

While China MediaExpress posted 2009 revenue of $95.9 million, Muddy Waters estimates the company's actual revenue for the year totaled no more than $17 million. 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.

China MediaExpress operates the television advertising network on intercity express buses in China. Muddy Waters claims that data China MediaExpress provides to advertisers shows it has fewer than half of the 27,200 buses it claims to have. "We estimate that over half of CCME's network buses do not actually play CCME content. Rather, drivers play DVD movies that are often provided by passengers," Muddy Waters wrote in the research note.

In addition, Muddy Waters alleges that China MediaExpress' management lied when the company announced it had created an online shopping platform that has an agreement with


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or one of Apple's distributors.

"AAPL made clear to us that it has no such relationship with CCME's subsidiary," Muddy Waters wrote. "Further, AAPL keeps tight control over its distribution in China, with only two authorized online distributors (including's

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China subsidiary). None of AAPL's China distributors have authority to sub-license."

Lena Cati of the Equity Group, who is listed as the investment relations contact for China MediaExpress, was not immediately available for comment. Shares are lately down 29% to $11.77.

Muddy Waters has mixed results with previous research reports on Chinese reverse mergers. In June, the short-seller issued a bearish report on

Orient Paper


, asserting that the paper products company is a "fraud" and that it "overstated its 2008 revenue by 27 times." Shares rebounded modestly after Orient Paper announced a positive result from an internal review aided by Deloitte & Touche.

On the other hand,

Rino International

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shares tanked after Muddy Waters questioned the veracity of the amount of contracts the China-based company had. Rino's management eventually acknowledged that two customer contracts questioned by the shorts had not in fact been signed. Rino also said there might be problems with 20% to 40% of its other customer contracts.

Earlier this week,

Citron Research released a similarly bearish report on China MediaExpress

, citing discrepancies in documents filed to China regulators and credit rating agencies as well as financial analysis. The firm argues that China MediaExpress does not exist at the scale it is reporting to the investing public.

"We are not saying that they do not operate any buses," Citron Research wrote, "but if you believe that the company operations are truly reflected, or even close to their stated financial disclosures, than you must go to Taco Bell for some filet mignon."

After Citron's negative report was released, China MediaExpress issued a press release saying it "strongly disagrees with the views expressed" and that investors should continue to rely on filings the company has made with the

Securities and Exchange Commission


"CME confirms that they were never approached by Citron Research with respect to the company, its growth, the advertising business in China or industry conditions generally and accordingly cannot comment on the reliability of their information or the thoroughness of their analytics," China MediaExpress said in a statement on Feb. 1.

-- Written by Robert Holmes in Boston


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