Shanghai: Focus Media Holding Limited denied assertions from short seller Carson Block saying a report reflects a misunderstanding of the company's business.

Muddy Waters LLC, Block's firm, said that Shanghai-based Focus Media overstated the number of television screens in its ad network and may have overpaid for takeovers to mask losses. Focus Media said that Muddy Waters is attributing "motives to management that are based on innuendo" and that the LCD screen allegations are unfounded, according to a press release distributed by PRNewswire yesterday.

Focus Media "denies the allegations entirely", the company said.

More than $1.36 billion (Dh5 billion) of Focus Media's value was wiped out following the report, the biggest erosion of market capitalisation following a Muddy Waters report since June, when it said Toronto-traded timber producer Sino-Forest Corporation was misleading investors. Analysts from at least 10 firms including Bank of America and Goldman Sachs had "buy" ratings prior to the report, Bloomberg data show.

Chinese stocks trading in the US have faced investor scrutiny this year after companies such as China MediaExpress Holdings disclosed financial irregularities or auditor resignations. Block fuelled the speculation with reports on Rino International Corporation and Sino-Forest Corporation. More than 35 non-US companies had their trading halted on American exchanges because of inaccurate financial statements and other issues, according to the Securities and Exchange Commission.

Ad network

Focus Media is inflating the number of screens in its ad network by about 50 per cent, Muddy Waters said.

Block's firm said Focus Media has also overstated the value of takeovers, leading to writedowns of $1.1 billion following $1.6 billion of acquisitions since 2005.

"Allegations relating to historical acquisitions, impairment charges and write-offs impugn the motives of management without foundation or basis," Focus Media said in its statement.

The company said it will recommend the board hire an outside firm to examine the size of its ad network. The results of that review should be ready in two weeks, Focus Media said.

"There's not much of a concern for the advertisers," Focus Media's CEO Jason Jiang said on a conference call with analysts. "There's not much confusion in terms of what the number of screens are out there."

Focus Media said it will keep buying back shares through its repurchase programme, which authorises it to spend about $300 million. The company bought $237.2 million in 2010, according to data compiled by Bloomberg.

"The lower the share price, the more aggressive we get," Jiang said. "It is pretty much a no-brainer, and we'll jump into the market and start buying as soon as we can."

Jiang will buy $11 million of shares, the company said.

Muddy Waters said investors should assume the firm is betting against Focus Media shares. It's the seventh company targeted by Muddy Waters and the second-largest by market value behind Sino-Forest.