Fraudster Update (CCME edition!)
Sharesleuth has posted the first 2 parts of a 3-part series on Chinese frauds. I found their research to be interesting, particularly because they discovered that a lot of the money that was stolen from investors did not go into Chinese hands, but rather it ended up in the hands of people like Paul Kelley who facilitated the listings of the fraudulent companies on US exchanges. In an earlier story, they explain that people like Kelley received millions of shares in the newly listed companies, at very low, pre-listing prices.
This made me want to take another look at the most infamous Chinese fraud of all time: CCME.
CCME was listed on the Nasdaq in 2009. It was eventually delisted following several very well-publicized allegations of fraud, as well as the resignation of their auditor, etc. At this point it is pretty clear that the company was a fraud, yet no one has been brought to justice. Many people point the blame at CCME's current CEO, Zheng Cheng. I think that ignores the true perpetrators of the crime.
The company that would later become known as China MediaExpress (CCME) was originally called TM Entertainment. TM was owned and operated by its two Co-CEO's: Theodore S. Green and Malcolm Bird. In their early SEC filings, TM Entertainment makes it clear that they are nothing more than a blank check company. To use their own words:
TM Entertainment and Media, Inc. is a newly formed blank check company organized for the purpose of effecting a merger, capital stock exchange, asset acquisition or other similar business combination with a domestic or foreign operating business.
TM Entertainment was based out of Green's office (or residence?) at 307 East 87th Street, NY, NY. He purchased the property in 1995, many years before TM Entertainment was created.
TM Entertainment was able to raise approximately $85 million in their 2007 offering. At that time the company was worth about $173 million counting all warrants, etc.
In 2009, TM Entertainment purchased a Chinese bus company called Hong Kong Mandefu Holding Limited (known as CME), and they changed their name to China MediaExpress (CCME). At the time of the reverse merger they showed quite a lot of confidence in CME's prospects. For example:
Commenting on the transaction, Theodore S. Green, TM’s Co-CEO, stated,
“Immediately after TM’s IPO, we initiated our search for a business
combination partner in the entertainment and media industry, seeking a
well-managed, profitable, growth company. Over the last year and half, we
looked at numerous candidates and believe we have found an ideal partner. We
are very impressed with CME’s exceptional success building a multi-million
dollar company from the ground up in just over five years, and are convinced
by the Company’s prospects for continued growth.”
After the reverse merger, Green and Bird became directors for CCME, but they both resigned in early 2010.
The details of the reverse merger are interesting. After the transaction, there were a total of 32.7 million fully diluted shares outstanding. CME received 60% of these shares in the transaction. The other 40%, presumably, still belonged to the original shareholders of TM/CCME.
TM's 2008 annual report is a strange thing to read. The company didn't do anything, they had no operations. They had about $81 million in cash, held in a trust. They paid about $6400 a month to rent their "executive offices" at 307 East 87th Street, NY, NY. Presumably Green was just giving this money to himself, using TM's checkbook.
CCME's 2009 annual report did not list Green or Bird as major shareholders. In the merger announcement made in October of 2009, they were extremely optimistic about the growth prospects of the company. But, their holdings were gone just a few months later.
Prior to the merger, Green had 1,375,000 shares in TM/CCME, worth about $11 million at that time (the listing price for CCME in 2009 was $8/share). Bird had 875,000 shares, worth about $7 million.
Anyway, what have Green and Bird been up to since the whole CCME debacle?
On his LinkedIn profile, Bird writes:
"I recently completed a reverse merger from a SPAC (special purpose acquisition corp), buying a China media company for $173MM. The SPAC, TM Entertainment raised $85MM, and I acted as CEO of this public vehicle from conception to closing of the acquisition."
Most prospective employers would probably consider this to be a dubious achievement, at best, considering the fate of CCME. He took a "two year sabbatical" through 2010 and 2011, and is now doing consulting work in the media industry. An SEC search for his name does not produce anything that is not related to TM/CCME.
Green has been more active. His Forbes profile shows his involvement with a number of companies. It mentions him as a director for a company called Masterbeat. He is listed as a director of the company in this filing.
Green was involved in a reverse merger between Masterbeat and Green Mountain Recovery, which took place in December 2009 - just two months after the CCME reverse merger. He became a director following the reverse merger, but he must have resigned shortly afterwards, because in more recent filings he is no longer listed as a director. There are many parallels to CCME. The shell company (Green Mountain Recovery) was created in 2007, and the merger occured in late 2009 - just like CCME.
And it looks like Masterbeat isn't faring much better than CCME. They have been late in submitting their SEC filings. They have had resignations by the chariman of the board, and their auditor. Oh, and the share price of $0.0049 isn't so great either.
Green is also serving as the CEO of RLJ Entertainment (RLJE). Judging by the company's chart, it looks like the "Green effect" is in full swing, as the stock has plunged by 50% over the past 4 months.
RLJE was listed on the Nasdaq after undergoing a reverse merger, again with Green's involvement. They merged with a company called Image Entertainment. Several directors resigned at the time of the merger.
Back to the beginning: there were two other people involved with TM Entertainment that I have not mentioned yet, who may have helped to facilitate CCME's reverse merger. These people are Jonathan F. Miller and John W. Hyde. They were both mentioned (although not as defendants) in Starr's lawsuit over CCME. Both Miller and Hyde show up in TM Entertainment's SEC filings. I haven't had time to research them, but it appears that they were not nearly as actively involved as Bird and Green. And both have extensive, legitimate business histories apart from CCME. It is unclear if they made money off the TM/CCME merger.
One interesting thing I found is that Hyde is also involved in RLJE/Image Entertainment along with Green, as can be seen here.