Chinese Ad Agency Accused of Inflating Stock

     (CN) – Shares in the Chinese ad agency AirMedia plummeted more than 50 percent, “erasing more than $250 million in market capitalization,” after an elaborate lie about valuation unraveled, a federal class action alleges.
     Jiehua Huang filed the lawsuit in Manhattan on June 25 against AirMedia Group Inc., its CEO Herman Man Guo and its CFO Richard Peidong Wu.
     Founded in 2005, China-based AirMedia’s operates out-of-home advertising platforms, “including a network of digital TV screens on airplanes; traditional media in airports, such as light boxes, billboards, and painted advertisements; and gas station media displays,” according to the complaint.
     Huang says AirMedia’s programs were televised on “planes operated by seven airlines,” as of March 31, 2015, and it operated 454 light boxes and billboards in seven airports.
     Before AirMedia began releasing the misleading statements at issue, its American depositary receipts (ADRs) traded below $2 a share on April 7, 2015, giving the entire company about a $100 million value, according to the complaint.
     That day, AirMedia issued a press release claiming to have sold 5 percent of the equity in its advertising subsidiary to an LED advertising display manufacturing company.
     AirMedia did not announce the actual sales terms, however, saying only that payment for the transaction would take 10 working days to be completed, Huang claims.
     The company allegedly “emphasized that the deal ‘reflected the total valuation of AM Advertising of RMB3 billion,’ or $500 million.”
     As the market “digested this news,” the price of AirMedia ADRs rose from a close of $2.05 to over $5 per ADR within three weeks – an increase of 145 percent – upping the value of the company to nearly $300 million.
     But Huang says blogger Richard Pearson of MoxReports pulled back the curtain on the nonbinding deal in an April 28 article that said AirMedia’s supposed partner had “not even conducted due diligence.”
     AirMedia nevertheless doubled down on its lie the next day and took it further in a May 18 call with investors and stock analysts, the complaint alleges.
     In that call, Wu allegedly insisted that the $500 million valuation was “justified by ‘leveraging [the] gap between U.S. and China stock markets valuations.'” (Brackets in original.)
     When AirMedia finally came clean about its valuation on June 15, the price of its ADRs had risen to $7.70 per in intraday trading, Huang claims.
     AirMedia’s press release announced “that it had instead entered into a definitive agreement to sell a 75 percent equity interest in AM Advertising to Beijin Longde Wenchuang Fund Management Co. Ltd. for RMB2.1 billion/$344.4 million (with $1 = RMB6.0984),” according to the complaint (emphasis and parentheses in original).
     The ADR price then “plummeted more than 50 percent over the next two days, erasing more than $250 million in market capitalization,” Huang says (emphasis in original).
     Huang wants to represent a class of hundreds or thousands who traded in AirMedia ADRs between April 15 and June 15.
     The complaint asserts violations of the Securities Exchange Act.
     Huang is represented by Samuel Rudman with Robbins Geller Rudman & Dowd LLP in Melville, N.Y.
     AirMedia has not returned a request for comment.

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