Need to tread with care here. Last week's amended S-1 was a positive step because it set an expected date of August 1 for the spin-out. On the other hand, there was a huge red flag: the number of shares eligible for future sales jumped up from 12,911,460 to 18,136,503. That means that there were previously 5,225,043 shares that were somehow considered ineligible and that are now considered eligible. Shares are considered ineligible if they are owned by "affiliates" such as Libsyn’s directors, executive officers and significant stockholder. In shorthand, an "affiliate" is an insider. This change could indicate that some set of shareholders were considered "affiliates" previously and are now being reclassified as non-affiliates. That's red flag because it could mean that someone finagled their way out of being considered an insider technically but that they in fact have close links to management. That would be a great set-up for a pump-and-dump effort.
Given that this management team previously dumped shares at a high prior to public revelations that the company was a shame and that management has an incredibly fishy audit arrangement with a captive one-man audit shop, the possibility of a pump-and-dump is real. The law typically prevents insiders from trading shares immediately after they become tradeable by restricting the ability of insiders sell their shares. But, the 5+ million shares that were previously restricted and now are not could represent management's successful effort to set themselves up for a pump-and-dump that might technically be legal.
This is just speculation, but the biggest risk with FABU has always been management. The S-1 makes things look attractive enough. The question is not whether there is a decent opportunity if we take the S-1 on its own terms. The question is whether anything in the S-1 is actually true and whether the management with no-name captive board members and a one-man audit shop may be cooking up a way to fleece shareholders. There are really easy steps these guys could take to address concerns around management trustworthiness:
- hire a reputable major audit firm that has no previous link to management
- appoint independent board members who are credible business people without prior links to management
- remove ceo/cfo and replace with professional management
The fact that they have not taken any of these steps is what gives pause and concern about FABU.
