Seeking Alpha

FAB Universal responds to fraud allegations, uncovers "deficiencies in the Company's internal controls"

  • FAB Universal (FU) discloses it has "uncovered certain deficiencies in the Company's internal controls" after a preliminary internal review undertaken at the direction of its board in response to "numerous published reports ... by acknowledged short-sellers." The board has authorized the hiring of an independent third party to verify the findings.
  • The review determined that one of FAB's VIEs "conducted a $16.3M bond offering in China which was not reflected on the Company's financials," as has been alleged by The GeoTeam. The company notes none of the funds have been used by FAB to date. FAB will restate its Q2 and Q3 reports to reflect the liability and interest expense.
  • As to allegations that the company has exaggerated its kiosk count, the board states that "short sellers have a fundamental, but understandable, misunderstanding of the economics of the Company's business. FAB does not buy, sell or own kiosks. Instead, it sells licenses to operate Intelligent Media kiosks ... As of September 30, 2013, 16,820 licenses have been sold, of which 3,954 have been issued for the placement of kiosks in Beijing; all of the 3,954 kiosks in Beijing have been deployed." The board has also re-verified 12,866 licenses thus far and will continue with the remaining licenses.
  • The company also responds to allegations that kiosk licenses carry minimum guarantees by noting that a review of 75% of contracts "has not identified any instances of a minimum guarantee."
  • As to pirated content, FAB will examine its content control processes and implement "any measures deemed necessary to tighten controls."
  • Shares remain in a T1 halt.
This was corrected on 12/11/2013 at 03:55 PM.
Comments (6)
  • wyostocks
    , contributor
    Comments (8087) | Send Message
     
    So much for all those laws and rules enacted after Enron to prevent this sort of stuff and insure strict internal controls exist.
    10 Dec 2013, 11:59 AM Reply Like
  • phedrus4quality
    , contributor
    Comments (19) | Send Message
     
    My opinion is that Jon Carnes, aka Alfred Little, looks for companies that have strong earnings and more complex business models in China, and performs these investigations to fit the constructed short thesis he has. Because it is virtually impossible for long investors to truly examine the results of the investigations, it fills the investor with fear, uncertainty, and doubt and panic selling ensues. Again this is just my humble opinion and am very curious to see how this plays out.
    10 Dec 2013, 05:59 PM Reply Like
  • SA Editor Eli Hoffmann
    , contributor
    Comments (722) | Send Message
     
    If you're right, how is it that he seems to consistently stumble upon companies that turn out to be questionable once the fog settles? According to your theory, after the initial selloff his track record should be no better than a crap shoot.
    11 Dec 2013, 10:53 AM Reply Like
  • Alfred Little
    , contributor
    Comments (493) | Send Message
     
    track record:

     

    http://bit.ly/HXqgGW
    11 Dec 2013, 02:25 PM Reply Like
  • umberto V
    , contributor
    Comments (2) | Send Message
     
    Does this not explain it.....Does one side with seeking alpha's editor or the BCSC...

     

    Canadian regulators alleged on Thursday that a Silvercorp Metals Inc. short-seller committed fraud when he wrote negative reports about the mining company in order to profit from a drop in the miner’s stock.

     

    The accusation from the British Columbia Securities Commission is a sharp reversal of fortunes for short seller Jon Carnes, who operates New York-based EOS Holdings LLC and runs a financial blog, called Alfredlittle.com, where he issued his first damning report against Silvercorp in September, 2011.
    23 Dec 2013, 08:29 PM Reply Like
  • SurprisedGuy
    , contributor
    Comments (44) | Send Message
     
    Phedrus,

     

    Take a look at this quoted excerpt from the 12/20/13 Barron's article by Shuli Ren:

     

    Canadian securities regulators announced fraud charges on Thursday against the head of a hedge fund whose researchers’ arrests in China were the subject of a recent story in Barron’s (“The High Price of Digging Up Dirt in China,” Sept. 30).

     

    The British Columbia Securities Commission said that in 2011 Jon Carnes published falsely negative reports about the Chinese mining operations of Silvercorp Metals (ticker: SVM), a company whose shares are listed in Toronto and New York. Silvercorp had been sold short by EOS Holdings, the hedge fund that Carnes managed. As Barron’s reported, Carnes disguised his authorship of the critical reports by using the pseudonym Alfred Little."

     

    We may see a similar outcome in this FAB situation...
    24 Dec 2013, 04:13 PM Reply Like
DJIA (DIA) S&P 500 (SPY)
ETF Tools
Find the right ETFs for your portfolio:
Seeking Alpha's new ETF Hub
ETF Investment Guide:
Table of Contents | One Page Summary
Read about different ETF Asset Classes:
ETF Selector