Shares in China Media (CCME), a Fujian-based company that runs a television ad network on intercity and airport express buses in China, lost a third of their value Thursday as doubts about the company’s reported numbers intensified.

Muddy Waters, a Hong Kong-based research firm that bets against the shares of companies it reports on, issued a note Thursday afternoon asserting that China Media “is engaging in a massive ‘pump and dump’ scheme whereby it significantly inflates revenue and profits in order to enrich management through earn-outs and stock sales.”

China Media overstated its 2009 revenue by a factor of five, Muddy Waters claims, and in many cases its vehicles don’t even play the ads the company claims to have sold to its customers.

“We estimate that over half of CCME’s network buses do not actually play CCME content,” says the report from Carson Block of Muddy Waters. “Rather, drivers play DVD movies that are often provided by passengers.”

A representative of China Media didn’t immediately respond to a request for comment.

Muddy Waters could just be talking its imaginatively named book, of course. But its credibility on this call is aided by the quick demise of another Muddy Waters short, a Chinese maker of emissions gear called Rino International, which was delisted shortly after admitting it didn’t actually have a couple contracts it had previously claimed.

Like Rino, China Media was created in the purchase of a publicly traded U.S. shell company. Short-sellers have been circling these companies on the assumption they used this back door to go public for a reason other than saving on bothersome road show costs.

The battle over China Media has been intensifying over the past few days, with another short-selling site, Citron Research, publishing a report Monday calling China Media “the China reverse merger stock that is ‘too good to be true.’”

Citron called China Media “a phantom company” that has published financial numbers that “don’t make sense.” In response, China Media issued a press release saying it hadn’t been contacted by Citron.

It added that it “strongly disagrees with the views expressed and believes that investors should rely on the Company’s public reports filed with the Securities and Exchange Commission.”

John Hempton, a widely followed investment blogger who runs the Bronte Capital hedge fund in Australia and is short China Media, wrote this week that the China Media case is fascinating because the company is either one of the extraordinary businesses in history, or one of the most brazen frauds – “and so far nobody has the extraordinary evidence.”

Hempton writes that the strongest point in China Media’s favor is a big investment in the company by Starr International, the investment firm associated with Hank Greenberg, which would presumably have the know-how to kick the company’s tires. Starr is the company’s biggest shareholder, with a 16% stake.

Whether the tires on China Media were kicked or not, they are quickly going flat Thursday. The stock, down more than $5 to $11 and change, has lost more than half its value over the past week.

*Correction: Earlier I wrote China Media Express was previously known as “Delightfully Frozen Corp.” and that its recent securities filings were signed by someone named Con Unerkov. Those statements are true not of China Media Express, but of the unrelated China Media Group of Hong Kong. My apologies for the error.