Fab Universal plummeted after the board of directors of the company disclosed that its Chairman Zhang Hongcheng was arrested by the Xicheng Economic Investigation Department in Beijing on allegations that he illegally obtained public funds.
The company also revealed that the size of its board has been reduced from seven to four on February 5. Gu Jianfen resigned as director of the company effective immediately. James Rogers, Jr. did not renew his contract.
Fab Universal lost 50% of its value to $0.05 per share at the time of this writing around, 12:43 in the afternoon in New York.
Fab Universal to ask Chairman Zhang to resign
Fab Universal has been informed by the regulators in Beijing that the prosecutors are still determining whether to file charges against Zhang in connection with the allegations against him.
The board of directors of Fab Universal clarified that Zhang was accused of illegally obtaining public funds of another company he owned. The board was unable to confirm additional information regarding the detention or charges filed against Zhang.
Fab Universal said its board decided to request Zhang to resign from his position as chairman as soon as the company establish communication with him, At present, authorities do not allow any communication between the management and Zhang.
Fab Universal’s business in China appears abandoned
The company also disclosed that its business in China appears abandoned. Its retail stores in the country are closed and empty.
The business of Fab Universal in China has been under investigation for more than a year. Last year, the company disclosed that an independent investigation found pirated content in some of its media kiosks in Beijing. Most of its 3,000 media kiosks were not operating.
Last December, the board of directors of the company conducted an internal investigation after finding out that its Chinese subsidiary paid around $85 million for contracts to license film and television rights.
“To date, the board has been unable to verify the authenticity of the contracts, the identity of the counter-parties, or the goods or services received by the company pursuant to the contracts,” according to Fab Universal in its filing with the Securities and Exchange Commission (SEC).
Fab Universal said its management cannot determine whether its wholesale business in China is still operating. The company stopped its digital business because of lack of funds.