FOCUS Media Holding Ltd yesterday dismissed a report by shortseller Muddy Waters as "utterly untrue" and entirely denied its allegations that it has cooked its account books.

The Nasdaq-listed Focus Media, the largest lifestyle-targeted out-of-home digital media company in China, maintained that the allegations set forth in the Muddy Waters report concerned matters which have "long been disclosed in Focus Media's annual reports and press releases", and "misrepresent" the information they present, according to a statement released late last night.

The report was based on "innuendo" and "failed to take into account business and commercial considerations relevant to the discussed matters," the statement stressed.

The statement was the first crisis management move taken by the Shanghai-based advertising network after its share price plunged more than 39 percent and once dropped to as low as US$8.79 on Monday in the United States after Muddy Waters, owned by US investor Carson Block, said FMCN had overstated the number of television screens in its ad network and may have overpaid for takeovers to mask losses.

FMCN shares jumped about 10 percent to hover around US$17 in early trading on the Nasdaq yesterday.

Block, who has risen to fame following several shotdowns of China plays over murky accounts, put a rating of "strong sell" for the Chinese firm and also tagged it as "the Olympus of China" because of the way it overpaid for acquisitions, according to the report on Muddy Waters' website.

The report accused FMCN of "fraudulently overstating" the number of screens in its LCD network by about 50 percent, which is similar to China MediaExpress Holdings, whose fraud was exposed by Muddy Waters in February.

Besides, like Japan's Olympus, FMCN is "significantly and deliberately" overpaying for acquisitions, writing down US$1.1 billion out of US$1.6 billion in acquisitions since 2005, the report written by a team headed by Block said. These write-downs are equivalent to one-third of FMCN's present enterprise value.

"Our research shows that FMCN has claimed to acquire, write down, and dispose of companies that it never actually purchased," the report said. "Investors should be concerned about where the cash actually moved to in these transactions, and about the integrity of reported results."

FMCN has written down at least 21 acquisitions to zero and then given them away for no consideration; this has been done for many reasons but primarily to put FMCN's problems beyond the reach of auditors, it claimed.

Muddy Waters also found during its research that insiders have used FMCN as their counterparty in trading in and out of FMCN subsidiary Allyes, with several individuals earning a total of at least US$70.1 million, while shareholders lost US$159.6 million.

Sales of FMCN shares by insiders have netted them at least US$1.7 billion since FMCN went public in 2005, according to the report.

Focus Media fought back in its statement last night, saying that the allegation regarding the number of LCD display network screens in its network is "incorrect and reflects a misunderstanding in the types of devices used by the company and their method of calculation".

"We believe that those responsible for compiling the report based their calculation entirely on the number of basic LCD screens, and ignored the digital screens and LCD picture frame devices, erroneously believing the latter two to be part of the company's picture frame network," the statement said.

The allegations relating to acquisitions, impairment charges and write-offs impugn the motives of management without foundation or basis and amount to no more than a questioning and second guessing of the motives and business judgment of the Focus Media management, the statement added.

Besides, allegations that management pursued acquisitions for their own improper benefit were totally "unfounded," it said.

Although the accusations so far were of a general nature, jittery investors rushed to sell in the aftermath of the Muddy Waters report, which benefits shortsellers like Block who can profit from price declines by selling borrowed securities and replacing them with stock bought at lower levels.

More than US$1.36 billion of Focus Media's value was wiped out on Monday, the biggest erosion of market capitalization since Muddy Waters attacked Toronto-traded Chinese timber producer Sino-Forest Corp in June.

Total market value of Focus Media stood at US$3.41 billion based on its share price closed on last Friday, which made it by far one of the largest shortselling targets to have been attacked by investors like Block.

Focus Media closed at US$15.43 per share on Monday plummeting 39.5 percent, the lowest in 52 weeks, compared to its peak of US$37.58 per share during the period.

The performance was in sharp contrast to what the company achieved last week after it released a bullish earnings report that said net profit in the third quarter rose 45 percent from three months earlier to 62.2 million yuan.

The report immediately attracted market giants, such as Bank of America Corp and Goldman Sachs Group Inc, who rushed to buy the company's shares.

Focus Media also expects net revenue from its core business, including its LCD display network and others, the in-store network and the poster frame network, to be in the range of US$212 million and US$214 million. Net revenue for the non-core business, such as the traditional outdoor billboard network, is expected to be in the range of US$14 million and US$16 million, according to its third quarter report.

"Is it because our earnings report is so good that the shortsellers have to make up something as ridiculous as this to make profits?" Jason Jiang, chairman and chief executive officer of Focus Media, asked on his Sina Weibo account yesterday.

"It's hard to understand the US market when we see that the better a company is, the more it slumps in the securities markets," Jiang said.

Ji Hairong, vice chairman of Focus Media, also said on his Weibo account yesterday that "the company has not 'cooked' books" and the report by Muddy Waters is "extremely unprofessional and irresponsible."

Shanghai-based Fosun International Ltd, the largest shareholder of Focus Media with a 16 percent stake in the company as of July 19, told Bloomberg News yesterday that it is "seriously studying the Muddy Waters report on Focus Media" but declined further comment.

Fosun shares fell 6.52 percent to HK$4.16 (53 US cents) yesterday in Hong Kong.

The problem facing Focus Media right now is not about how they run their business but how they are going to protect investors interest, said Hou Xiaotian, CEO and chief analyst with T.H. Capital.

Catherine Leung, Goldman Sachs' Hong Kong-based analyst on the stock, raised her price estimate to US$45 from US$42 last Friday, a day after Focus Media reported profit that beat analysts' predictions by 12 percent, according to data compiled by Bloomberg.

Focus Media is the seventh company targeted by Muddy Waters and the second-largest by market value behind Sino-Forest.

The attack on Sino-Forest, one of China's leading commercial forest plantation operators, triggered an investigation by Canadian securities authorities and cost investors dearly.

In the previous six shortselling cases launched by Block, only two, Oriental Paper and Shanghai-based Spreadtrum Communications Inc, survived the attacks while the other four firms were all delisted.