News

FTI investigation of FAB kiosks reveals mixed findings

August 13, 2014

FAB Universal, provider of kiosk-based downloadable digital media and entertainment, released an update on its internal investigation conducted by FTI Consulting Inc. and FTI Investigations LLC.

Investigations of FAB were conducted on the basis of allegations "that the Company's kiosk business was overstated and that licensees were offered guaranteed returns … that the kiosks offered pirated content, that a subsidiary engaged in an undisclosed bond offering in the People's Republic of China, and that the Chairman held an undisclosed controlling interest in the company that provided maintenance and other services to the kiosks located in Beijing," according to FAB's announcement. 

The investigation revealed mixed findings. On the state of FAB's finances, FTI discovered that as of Dec. 31, 2013, the Colorado company's bank statements matched their financial records.

Additionally, FTI determined at a "greater than 95-percent certainty rate," that FAB did not overstate the number of kiosks the company claimed to operate in Beijing. Investigators also found no evidence of overstatement for the number of kiosks outside Beijing. 

However, FTI confirmed FAB's kiosks do contain pirated content, though the company had rights to the "vast majority." FAB is taking steps to remove the copyrighted content and said that this finding "is not considered a material financial issue since the company does not rely in any material way on the small amount of revenue generated by download fees, which constitutes approximately 0.3 percent of total revenue."

FTI cleared FAB of allegations that licensees were guaranteed ROI as well as accusations "that FAB's chairman has an undisclosed controlling interest in Huzhong," the company that maintains Beijing kiosks. Evidence of the proceeds of the undisclosed bond were confirmed by investigators and have been transferred to FAB's primary bank, the announcement said.