On Monday, November 18th, 2013, my investigators caught FAB’s Chinese management in the act as they attempted a full-scale cover-up of the pirated U.S. movies on FAB’s kiosks. In today’s report, I present “before” and “after” videos of FAB’s Beijing kiosks documenting the removal of the pirated U.S. movies. My investigators interviewed FAB’s kiosk operators and discovered that FAB was removing all of the pirated U.S. movies over anti-piracy concerns after FAB’s “copyright licenses had expired.” What a convenient coincidence!
FAB Universal Corp (NYSE: FU) claims to be a global leader in the distribution of copyright-protected digital media. FAB derives substantially all of its revenue and profit from its Chinese subsidiary, which, according to its FY2012 10-K filed on 3/18/13:
“… is engaged in marketing and distributing various officially licensed digital entertainment products under the ‘FAB’ brand throughout the PRC…”
At the core of FAB’s Chinese business are its “Intelligent Media Kiosks” allowing consumers to download copyright-protected movies and music to their portable storage devices. FAB claimed to have 3,954 such “intelligent” kiosks in Beijing alone, according to its 6/1/12 proxy (DEF 14A, filed with the SEC on 6/15/12), with over 16,820 active kiosks deployed in 40 Chinese cities according to FAB’s 11/13/13 press release announcing 2013 Q3 financial results.
In today’s report I will show that:
- Contrary to FAB’s anti-piracy claims, FAB’s “Intelligent Media Kiosks” are in reality loaded with very obviously pirated U.S. movies.
- FAB’s kiosk manufacturers acknowledged that: a.) They historically supplied around 1,600-1,700 kiosks to FAB, only 10% of the 16,820 units FAB claims to have deployed. b.) One kiosk supplier helped FAB stage phony manufacturer site visits for FAB’s investors, reminiscent of the China Integrated Energy (CBEH) fraud I exposed in 2011.
- FAB’s director of franchisee sales acknowledged that: a.) FAB has only around 1000 kiosks in Beijing (compared to 3,954 disclosed in the 6/1/12 proxy); and b.) FAB promises kiosk franchisees guaranteed minimum returns on their investments and offers to buy back the franchised kiosks using FAB U.S. listed common stock.
Based on the interviews and evidence that I collected, I conclude that FAB’s business in China is a tiny fraction of what it claims in its SEC filings. FAB’s actual profitability would be reduced even further if the company upgraded its pirated content to properly licensed content (assuming that is even possible). Finally, FAB has potentially enormous undisclosed liabilities for guaranteeing minimum investment returns to franchisees and undisclosed potential dilution from common stock issuable to franchisees.
I am now preparing to publish new reports exposing more Chinese U.S. listed stock frauds that I am certain will be delisted and decline to zero. As I have done in the past, I am sharing all of my evidence with the appropriate regulators so they can take action against these companies and their management, some of who are U.S. citizens.
On October 9, 2013 an amended claim was filed in the Canadian class action lawsuit against Silvercorp Metals. The amended claim alleges that Silvercorp exaggerated grades and resources from 2009-2011 and failed to adequately disclose a related party customer. The key allegations can be found in paragraphs 47 to 62.
A copy of the amended claim can be downloaded by clicking the following link:
On Saturday, Barron’s published a feature story on SVM’s corruption of the Luoyang Police, titled “The High Price of Digging Up Dirt in China.” The article was written by Bill Alpert and Leslie P. Norton, who together won a Society of American Business Editors and Writers award for their 2010 investigation of “reverse-merger” Chinese stocks.
The article introduces Michael Wei, a Chinese research analyst who the Luoyang Police forced to sign a false confession statement implicating Kun Huang, a Canadian research analyst detained in a Chinese jail for over a year. The Luoyang Police threatened that Michael must testify against Kun or else face a long imprisonment.
Rather than falsely testifying against Kun, Michael left China and offered his full cooperation to the RCMP as they continue to conduct a criminal investigation of the bribes paid by SVM’s management to the Luoyang Police.
The key evidence that Michael provided to the RCMP are video and audio recordings of his meetings with the Luoyang Police, in which he catches the police red-handed accepting bribes from SVM and discussing how they will “fabricate” charges against Kun.
According to the Globe & Mail today:
“The U.S. Securities and Exchange Commission is investigating Silvercorp Metals Inc. and has issued a subpoena to the mining firm requesting all documentation relating to the Vancouver company’s long-running battle with short sellers.”