Whenever anybody raised red flags over China MediaExpress, as has happened quite a bit in recent months, the flip-side from the bulls was always that the company’s biggest investor was none other than Starr Investments, a unit of Maurice “Hank” Greenberg’s privately held C.V. Starr & Co. Greenberg, Starr's CEO, is better known as the former CEO of American International Group.
AP
Maurice "Hank" Greenberg
According to China MediaExpress’s proxy , Starr is China MediaExpress’s largest investor, with a 15.2% stake originally worth $30 million. China MediaExpress claim to put television ads on inter-city buses in China.
It’s unclear the level of due-diligence Starr did, but this much is clear — it’s one investment Starr now wishes it never made.
On Friday Starr Investments, a unit of Starr, sued China MediExpress Holdings, Deloitte Touche Tohmatsu and several China MediaExpress executives in the U.S. District Court in the District of Delaware alleging it was “fraudulently induced” into purchasing the shares.
The suit follows a halt in trading of China MediaExpress’s shares more than a week ago; shortly after the trading halt the company announced that Deloitte, its auditor, and CFO Jacky Lam, had quit. It also delayed its 10-K, due last week. The shares remain halted.
According to the suit, Starr began discussing a potential investment into China MediaExpress in 2009. “During those discussions and in subsequent due diligence CCME management represented CCME to be a highly successful, reputable and profitable media and advertising company, with extensive operations throughout” China.
Starr bought its stake on January 12, 2010.
Last January Citron Research issued a report alleging the company “does not exist at the scale they are reporting to the investing public.”
Three days later, Muddy Waters Research issued a report alleging that China MediaExpress “is engaging in a massive ‘pump and dump’ scheme…significantly inflating its revenue and earnings in order to pay management earn-outs and inflate the stock price so insiders can sell.”
Now, according to the lawsuit, Starr believes it was the victim of “material misstatements.”
To read the entire lawsuit, click here.
Meanwhile, today China MediaExpress said it is required by the Nasdaq to file a plan of compliance regarding its delayed 10-K by March 31. It says it intends to comply.
Starr declined to comment.
P.S.: I’m not related to Hank Greenberg.
Questions? Comments? Write to HerbOnTheStreet@cnbc.com
Follow Herb on Twitter: @herbgreenberg
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