Jan. 24 (Bloomberg) -- Focus Media Holding Ltd. said the U.S. Securities and Exchange Commission is probing potential “violations” of securities law, with special attention to purchases and resales of companies including Allyes Online Media Holding.
The Shanghai-based advertising company is cooperating with the SEC, it said in a regulatory filing on Jan. 18 about its going-private transaction with Carlyle Group LP and other firms.
“On March 14, 2012, the SEC informed the company that it was initiating a non-public investigation into whether there had been any violations of the federal securities laws,” it said in the filing. “The SEC advised the company that the existence of the investigation should not be construed as an indication by the SEC or its staff that the company or any of its officers or directors had violated any of the federal securities laws,” it said.
Focus Media fell 80 cents, or 3.1 percent to $24.99 in Nasdaq Stock Market trading, after earlier falling as much as $2.05, or 7.95 percent. It was the biggest one-day drop since Sept. 24 on concern that the probe may affect the pending buyout.
The Allyes deal, involving the swift resale of an acquisition of the Internet ad company back to the original owners, was one of a series queried in 2010 by the SEC in letters to the company. The regulator wrote in a Sept. 22, 2010, letter, published later on its website, an “apparent pattern” and asked for explanations, including of writedowns of the assets before reselling them after a short period.
The SEC letters are sent to executives during periodic reviews of their filings, often demanding revisions of disclosures.
The regulator told Focus Media to “consider” drawing up for investors a table of similar deals, including the price paid and the dates of purchase and resale to the original owners, as well as the amount of “impairment” before the sale.
Investors also should be told details of the January 2010 agreement for the sale of 38 percent of recently-bought Allyes to employees, managers and directors, and why the sale to the original owners was taking place, the SEC wrote. It told Focus Media to discuss in an amended filing the sale of the remaining 62 percent of Allyes, the gain or loss on the sale, whether it went to related parties, and the business reason for it.
The regulator also told Focus Media to expand its discussion of such sales and tell investors how it decided which subsidiaries were underperforming, and the metrics used.
After the SEC letter, short-seller Muddy Waters LLC published a report that criticized the deals. On its Website today, Muddy Waters posted a new comment on the purchases and resales, saying Focus Media sold them at low prices or “literally gave them away” in many of the 12 such transactions it found.
Focus Media agreed in December to be bought by a group of investors led by Carlyle Group in a $3.7 billion deal that will be China’s largest leveraged buyout. The stock has remained relatively stable since August because of the pending buyout.
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