FAB trading suspended amid woes

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Trading was suspended Friday in shares of FAB Universal, halting a steady decline in the stock price of the beleaguered Pittsburgh-based digital content provider.

FAB shares tumbled this week after allegations that the company significantly overstated the size of its China operations, sells pirated movies at ATM-like kiosks in that country, and failed to disclose a $16.4 million bond offering in filings it made with the Securities and Exchange Commission.

On its last day of trading Thursday, FAB fell $1.10, or 26 percent, to close at $3.07. It was off $2.22 for the week.

On Nov. 15, the company denied the allegations regarding its China business, calling them misleading and inaccurate. The company said it would refute the allegations "as soon as possible."

After charges about its failure to disclose the bond offering were made this week, FAB issued another statement Wednesday, vehemently denying what it termed "self-serving" reports.

The New York Stock Exchange said trading was halted pending material news from the company.

As of 5 p.m. Friday, FAB had not issued a statement and a company spokeswoman did not respond to an email seeking comment.

The allegations have prompted lawyers to file several shareholder lawsuits against the company and its officers.

FAB was created last year when Pittsburgh-based Wizzard Software completed a reverse merger with Digital Entertainment International, a Hong Kong company. The transaction gave DEI Wizzard's NYSE listing and transformed the chronically unprofitable Wizzard into what a Zacks analyst said is "a cash generating machine."

The company reported third-quarter earnings of $7.3 million on revenue of $29.8 million.

In a quarterly filing with the SEC this month, FAB said it has more than 16,000 kiosks in China that sell copyrighted digital content, including movies, music and games. It said the kiosks generated revenue of $11.8 million in the third quarter and $26 million in the first nine months of this year.

Jon Carnes, a short seller who has targeted other Chinese companies involved in reverse mergers, said FAB's Chinese business "is a tiny fraction of what it claims in its SEC filings." He said the company only has about 1,600 or 1,700 kiosks in China and that they sell pirated copies of recently released U.S. movies at an average price of 13 cents.

This week, Mr. Carnes said FAB was removing pirated U.S. movies from the kiosks.

Mr. Carnes said he intends to report his findings to the SEC and the New York Stock Exchange.

Len Boselovic: lboselovic@post-gazette.com or 412-263-1941.

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