{
  "docId": "019dd923-622c-750b-8b96-0d980fa2623b",
  "docSlug": "1cadb87c03b4",
  "documentTitle": "Focus Media Holding Ltd. (FMCN)",
  "authorId": "51_Muddy_Waters",
  "authorName": "Muddy Waters",
  "documentKindSlug": "research-note",
  "documentKindLabel": "Research note",
  "sourceTypeSlug": "short_seller",
  "sourceTypeLabel": "Short seller",
  "presentationDate": "2013-01-24 00:00:00",
  "orientation": "portrait",
  "aspectRatio": 0.77272725,
  "pageNumber": 2,
  "pageCount": 3,
  "prevPage": 1,
  "nextPage": 3,
  "slideType": "research-note",
  "function": "expose_contradiction",
  "density": "overcrowded",
  "nDataPoints": 0,
  "notes": "This is a research note page detailing investigative findings regarding fraudulent financial practices.",
  "elementsJson": [
    "paragraph",
    "footnote"
  ],
  "metadataConfidence": 1,
  "imagePath": null,
  "slideHref": "/slides/019dd923-622c-750b-8b96-0d980fa2623b/2",
  "deckHref": "/decks/019dd923-622c-750b-8b96-0d980fa2623b",
  "deckJsonHref": "/decks/019dd923-622c-750b-8b96-0d980fa2623b.json",
  "deckAnchorHref": "/decks/019dd923-622c-750b-8b96-0d980fa2623b#slide-2",
  "components": [
    {
      "bbox": null,
      "kind": "callout",
      "text": "In other words, when FMCN responded to our report by saying that Yaya was a VIE controlled by Directvantage Ltd., FMCN was clearly lying. Again.",
      "attrs": null,
      "subkind": null,
      "toolName": "Visual emphasis",
      "toolSlug": "visual-emphasis",
      "confidence": null,
      "componentId": "019dd952-ee39-730e-b026-619fcf73bb26",
      "frameworkName": null,
      "frameworkSlug": null
    },
    {
      "bbox": {
        "h": 0.08,
        "w": 0.7,
        "x": 0.15,
        "y": 0.74
      },
      "kind": "paragraph",
      "text": "Late last year, Hempton did some research in the BVI – mostly looking at the holding companies for other questionable acquisitions and disposals FMCN had undertaken. He found four FMCN acquisitions – all from purportedly unrelated sellers – had been registered by the same corporate secretary in the BVI, Overseas Management Co. As Hempton says, this is quite a coincidence, given the number of agents in BVI.",
      "attrs": null,
      "subkind": "paragraph",
      "toolName": null,
      "toolSlug": null,
      "confidence": null,
      "componentId": "1565d624-feae-4f5a-9eac-f2bf4a603ddb",
      "frameworkName": null,
      "frameworkSlug": null
    },
    {
      "bbox": {
        "h": 0.15,
        "w": 0.7,
        "x": 0.15,
        "y": 0.47
      },
      "kind": "paragraph",
      "text": "One of the key findings in our initial report was that the purported acquisitions and disposals of six mobile phone advertising companies were frauds. (See pp. 26-31.) We had examined the corporate registries in China, and it turned out that FMCN never owned the companies. We considered the possibility that FMCN could have purchased these companies through offshore indirect holding companies. (This type of arrangement is called a Variable Interest Entity or VIE.) For reasons we discussed in the initial report, it was clear that these companies were not FMCN VIEs.",
      "attrs": null,
      "subkind": "paragraph",
      "toolName": null,
      "toolSlug": null,
      "confidence": null,
      "componentId": "6aec6820-b500-4635-8af3-31f65ec5046f",
      "frameworkName": null,
      "frameworkSlug": null
    },
    {
      "bbox": {
        "h": 0.1,
        "w": 0.7,
        "x": 0.15,
        "y": 0.82
      },
      "kind": "paragraph",
      "text": "One of Hempton's Overseas Management discoveries involves Dongguan Yaya, which is also one of the mobile phone advertising companies we found FMCN never actually acquired. As Hempton discovered, and we confirmed, the BVI company that FMCN says it acquired in order to give it VIE ownership of Yaya, Directvantage Ltd., was registered over four months after the acquisition supposedly occurred. In other words, when FMCN responded to our report by saying that Yaya was a VIE controlled by Directvantage Ltd., FMCN was clearly lying. Again.",
      "attrs": null,
      "subkind": "paragraph",
      "toolName": null,
      "toolSlug": null,
      "confidence": null,
      "componentId": "73a11df1-a353-49aa-97df-fcac1b4e7567",
      "frameworkName": null,
      "frameworkSlug": null
    },
    {
      "bbox": {
        "h": 0.2,
        "w": 0.7,
        "x": 0.15,
        "y": 0.27
      },
      "kind": "paragraph",
      "text": "As we detailed in our initial November 21, 2011 report, we believe FMCN engaged in a series of at least 21 acquisitions and disposals in order to produce fraudulent financials. We saw a number of parallels to the Olympus (7733.JP) scandal, except that FMCN was even more brazen in its conduct. In many cases, FMCN impaired the acquisitions to zero, and literally gave them away – usually back to the sellers. In our opinion, the acquisitions were never bona fide – they were intended to either round-trip money that would come back in as revenue, or provide an excuse for FMCN's low cash balances relative to its reported operating cash flows. We also believe that FMCN disposed of the companies in order to keep them out of its auditor's reach.",
      "attrs": null,
      "subkind": "paragraph",
      "toolName": null,
      "toolSlug": null,
      "confidence": null,
      "componentId": "bd4b7528-71dd-402e-b222-94d0ecbf0a7c",
      "frameworkName": null,
      "frameworkSlug": null
    },
    {
      "bbox": {
        "h": 0.08,
        "w": 0.7,
        "x": 0.15,
        "y": 0.19
      },
      "kind": "paragraph",
      "text": "This past September, research that John Hempton of Bronte Capital did on FMCN inspired us to do some more work ourselves. This is the first time we have publicly discussed these findings, which provide additional evidence that FMCN is a long-standing fraud.",
      "attrs": null,
      "subkind": "paragraph",
      "toolName": null,
      "toolSlug": null,
      "confidence": null,
      "componentId": "c09ba9b0-9fd4-4fee-bb93-4e30e8853261",
      "frameworkName": null,
      "frameworkSlug": null
    },
    {
      "bbox": {
        "h": 0.12,
        "w": 0.7,
        "x": 0.15,
        "y": 0.62
      },
      "kind": "paragraph",
      "text": "Yet, FMCN's response – really the only thing FMCN could say short of a full admission – is that it did purchase those companies as VIEs. In its response, FMCN disclosed the purported BVI holding companies for the mobile phone companies. Until a September 2012 post by John Hempton of Bronte Capital, we did no more research on these purported acquisitions because we had already established that they never happened. (GeoInvesting had also called upon FMCN to disclose the WFOEs belonging to these BVI companies, which FMCN did not do.)",
      "attrs": null,
      "subkind": "paragraph",
      "toolName": null,
      "toolSlug": null,
      "confidence": null,
      "componentId": "ed4f9c17-f02c-4eaa-8b79-f8788b4ed6f3",
      "frameworkName": null,
      "frameworkSlug": null
    },
    {
      "bbox": {
        "h": 0.05,
        "w": 0.7,
        "x": 0.15,
        "y": 0.92
      },
      "kind": "source-note",
      "text": "1, 2, 3: Footnotes referencing external URLs.",
      "attrs": null,
      "subkind": null,
      "toolName": null,
      "toolSlug": null,
      "confidence": null,
      "componentId": "7de23229-2058-4855-b407-1baab96ee62f",
      "frameworkName": null,
      "frameworkSlug": null
    },
    {
      "bbox": {
        "h": 0.03,
        "w": 0.7,
        "x": 0.15,
        "y": 0.15
      },
      "kind": "title",
      "text": "MW Learned from John Hempton how to Catch FMCN in Another Lie",
      "attrs": null,
      "subkind": "headline",
      "toolName": null,
      "toolSlug": null,
      "confidence": null,
      "componentId": "e8710652-cb94-4087-aa77-4dcdc4e7ac07",
      "frameworkName": null,
      "frameworkSlug": null
    },
    {
      "bbox": {
        "h": 0.05,
        "w": 0.3,
        "x": 0.5,
        "y": 0.05
      },
      "kind": "title",
      "text": "Focus Media Holding Ltd. (FMCN)\nMuddy Waters, LLC\nJanuary 24, 2013",
      "attrs": null,
      "subkind": "headline",
      "toolName": null,
      "toolSlug": null,
      "confidence": null,
      "componentId": "f9550a07-ae23-4f7a-a8c0-337e10dbcde1",
      "frameworkName": null,
      "frameworkSlug": null
    }
  ],
  "metrics": [],
  "tools": [],
  "frameworks": [
    {
      "name": "fraud-exposure",
      "slug": null,
      "matchId": "d742807f-9f97-4845-ab4e-c75ee4d73534",
      "evidence": "The document systematically exposes contradictions in FMCN's financial reporting and acquisition claims.",
      "confidence": 0.9
    }
  ],
  "arcBeats": [
    {
      "to": 2,
      "from": 2,
      "beatId": "079638cd-7b0a-4fdb-a0ea-bfec21549e4a",
      "arcName": "Overcoming the Monster",
      "arcSlug": "overcoming-monster",
      "beatName": "Complication",
      "beatSlug": "complication",
      "evidence": "The research note on page 2 introduces the complication that FMCN is hiding something",
      "position": 1,
      "confidence": 0.8,
      "parentBeatName": null,
      "parentBeatSlug": null
    }
  ],
  "loops": [
    {
      "to": 3,
      "from": 2,
      "name": "Aha Moment",
      "slug": "03-aha-moment",
      "bestFor": "Data-heavy sections, research findings, analytical arguments",
      "matchId": "8933cb39-c134-439a-ac8d-88e106f9126a",
      "evidence": "The research note provides a clear aha moment by revealing the inconsistency in registration records",
      "position": 0,
      "objective": "To reveal the inconsistency in FMCN's registration records",
      "structure": "The Problem/Question -> What the Data Shows -> The Insight",
      "confidence": 0.7,
      "description": "Establish a tension, present data, then deliver the insight that changes everything"
    }
  ],
  "imagePathAlt": null,
  "thumbSrc": null,
  "thumbSrcAlt": null,
  "locked": true
}