muddy waters ceo imageFMCN’s bizarre acquisition of a ginseng plantation at the Russian and North Korean border illustrates that FMCN’s acquisitions are not kosher. The most troubling aspect of this acquisition is that the selling shareholders, who had purchased the plantation only five months earlier from the founders, included at least one FMCN employee. Strangely, this company seems to have no operations; yet, most recently reported a net profit margin of 48.9% on $1.5 million in revenue.1 We therefore wonder what purpose the ginseng plantation entity serves, and whether there are ongoing improprieties associated with it. We encourage FMCN’s auditor, Deloitte Touche Tohmatsu, to look at this acquisition for improprieties – along with examining the numerous other issues we have identified.

On November 21, 2011, Muddy Waters labeled FMCN “The Olympus of China.”
Olympus (7733 JT) is down by 57.6% since the October 14, 2011 revelation that it had
deliberately overpaid by at least $1.3 billion for acquisitions. An internal investigation of
Olympus called management “rotten to the core”,2 and concludes that Olympus
deliberately overpaid for acquisitions in order to hide losses.3
FMCN has written off approximately $1.1 billion out of roughly $1.6 billion over at least
21 acquisitions – in other words, FMCN itself has determined that it massively overpaid
on almost two dozen occasions. FMCN’s response to our reports has been that these
overpayments were due to (still existing) management’s incompetence. While we think
that FMCN’s business model is flawed and that the Company is poorly managed, we do
not believe that FMCN management’s destruction of shareholder value is in good faith.
Consistent with management’s long history of misrepresentations (including booking
acquisitions that FMCN never made) 4 and self-dealing, we believe that FMCN
deliberately overpaid for numerous acquisitions, begging the question “What are
FMCN’s true historical accounts?”

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