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China-Based Company and CEO To Pay $55.6 Million for Inaccurate Disclosures


Washington D.C., Sept. 30, 2015 —

The Securities and Exchange Commission today announced a $55.6 million settlement with Focus Media Holding Limited and CEO Jason Jiang to resolve charges of inaccurate disclosures about the China-based advertising company’s partial sale of a subsidiary to insiders, including Jiang.  The sale, which occurred before a third party purchased the subsidiary at a significantly higher price, yielded enormous profits to Jiang and other insiders. 

As part of the settlement, Jiang agreed to disgorge $9.69 million of allegedly ill-gotten gains plus prejudgment interest of $1.6 million, and pay a $9.69 million penalty.  Focus Media agreed to pay a $34.6 million penalty and the Commission has ordered the creation of a Fair Fund to return money to injured investors.    

According to the SEC’s order instituting a settled administrative proceeding, in March 2010, Focus Media disclosed an incentive initiative in which some of its managers and directors and certain employees, managers, and directors of its wholly-owned Internet advertising subsidiary, purchased a 38% stake in the subsidiary, Allyes Online Media Holdings Ltd. The purchase price, which Focus Media said was based on an independent third-party valuation, represented an implied value of $35 million for the entire subsidiary. However, unknown to shareholders, before the sale was finalized, a private equity firm had begun discussions with Allyes about acquiring the company for $150 million to $200 million.  As described in the SEC’s order, the potential acquirer’s business records stated that Allyes asked it to “hold off the deal” until the insiders’ purchase was finalized.  In July 2010, Focus Media announced that Allyes had been sold to the private equity firm for an amount that valued it at $200 million, nearly six times what the insiders paid just months earlier.

“This action against a China-based company and its CEO shows that issuers and the most senior officers will be held accountable for providing accurate information to the public, regardless of where their operations are located,” said Andrew M. Calamari, Director of the SEC’s New York Regional Office.

As set forth in the SEC’s order, the Focus Media board did not receive accurate information and Focus Media’s public disclosures were materially false and misleading as a result of Jiang and Focus Media’s failure to heed red flags about the transactions.  The red flags included:

  • the fact that the supposed management incentivization plan included non-manager consultants
  • that Jiang, CEO of the parent company, was the largest beneficiary in a transaction designed to incentivize managers of the Allyes subsidiary
  • the vast difference in valuations for the two transactions approved months apart
  • evidence of negotiations between Allyes and the acquirer before the insider transaction was approved
  • the lack of corporate formalities surrounding the approval and execution of both transactions

Jiang and Focus Media consented to the SEC order without admitting or denying the findings that both violated an antifraud provision of federal securities laws and that Focus Media violated the books and recordkeeping provisions.

The SEC’s investigation was conducted by Adam Grace, Dominick Barbieri, James Addison, and Preethi Krishnamurthy in the Commission’s New York Regional Office and was supervised by Sharon Binger, Director of the SEC’s Philadelphia Regional Office.  In addition, Scott Walster of the Division of Economic and Risk Analysis provided assistance.  The SEC appreciates the assistance of the Hong Kong Securities and Futures Commission, the Monetary Authority of Singapore, and the Cayman Islands Monetary Authority.  


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