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Trading in Fab Universal shares halted on NYSE

| Friday, Nov. 22, 2013, 1:57 p.m.

Trading in Fab Universal Corp. on the New York Stock Exchange was halted Friday, according to the CEO of the Oakland-based company and the stock exchange.

In an emailed statement, Fab CEO Chris Spencer responded: “It is a halt, pending news.”

He declined to answer questions, citing a shareholder lawsuit.

Fab has been targeted by short sellers who claim the company has been selling “pirated U.S. movies” and has overstated the size of its distribution network in China. A week ago, the company called the allegations “misleading and inaccurate” and said it would issue a public statement “to refute these defamatory remarks” as soon as possible.

Several lawsuits were filed on behalf of Fab shareholders and seek class-action status.

The NYSE said in a statement that Fab shares were “halted this morning before the open, for news pending. The stock will be halted until further notice.”

A news-pending halt is instituted “when a company has pending news that may affect the security's price,” according to the Securities and Exchange Commission. “By halting or delaying trading, market participants can have time to assess the impact of the news.”

When stock markets opened on Friday, the price of Fab's shares, which trade under the ticker symbol FU, remained at Thursday's closing price of $3.07, down 42 percent in the past five days.

“Trading halts under these circumstances do not typically last for too long,” said Rob Goldman, owner of Goldman Small Cap Research in Baltimore. “But if it persists, investors will be very concerned and impatient, and the consensus thought process could be that where there is smoke there is fire.”

As recently as Wednesday, Fab officials repeated denials of the allegations by short-sellers and said the company's “board of directors is working expeditiously to gather all relevant information necessary to respond.”

Last week, Jon Carnes, a short seller who operates investment firm Eos Global Holdings, made the allegations on his website AlfredLittle.com and on the popular investment website Seeking Alpha. A short seller profits from bets that a company's stock will decline.

Carnes said his fund has a “modest” short position in FAB shares, which he declined to specify.

Carnes said his allegations are based on information gathered by investigators he employed in China.

Fab's stock reached a high of $6.96 after issuing a positive earnings report on Nov. 13. Its closing high in the past 12 months was $9.70 on Sept. 25.

In its earnings report, CEO Spencer said Fab has kiosks in 40 cities across China with a total installed base of 16,820 terminals and that the company continues to add “high-quality copyrighted content” to its offerings.

Alex Nixon is a staff writer for Trib Total Media. He can be reached at 412-320-7928 or anixon@tribweb.com.

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