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TROUBLED CHINESE FIRM IN FREE FALL

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Published May 23, 2007, 9:00 a.m. ET

The Chinese corporate parent of white-shoe proxy adviser Glass Lewis continues to see its stock price drop as questions mount over its finances and transparency.

Xinhua Finance Media’s stock price closed at $7.10 yesterday, a $1.65 drop from Monday and a decline of over 40 percent from almost $12 on May 15. The company went public in early March at $13, with an IPO led by UBS and J.P. Morgan.

The Chinese media conglomerate’s troubles began when two high-profile Glass Lewis executives resigned last week, with one of them – former Wall Street Journal reporter Jonathan Weil – going public with his concerns about his employer’s owners.

On Friday, former Chief Financial Officer Shelley Singhal resigned all his posts after Barron’s raised questions about his history of involvement in troubled companies.

While executives come and go – especially after an acquisition – a quick peek into Xinhua Finance Media’s financials is raising questions among many observers.

Xinhua Finance Media reported a sharp increase in first-quarter net income to $12.58 million from a loss of $800,000 a year earlier.

But digging into the earnings release – the company hasn’t filed its audited quarterly report – shows a one-time, $12.9 million income tax provision.

Also dressing up the quarter’s numbers was $2.26 million in operating income the company did not explain in the release, especially given that the company did not report any operating income a year earlier.

In its first quarter it had $456,000 in interest income.

Without these gains, Xinhua Finance would have likely booked a multimillion-dollar operating loss.

Another area of concern: despite issuing an income statement, Xinhua Finance Media did not include a balance sheet, an omission made more glaring by the fact that the company reported its interest expense increased to $1.2 million from $168,000 a year ago.

Separately, Xinhua Finance and its underwriters were sued by an investor yesterday in Manhattan federal court for misrepresenting material facts about itself. The suit seeks class-action status.