After ZSTN shares fell almost 40% an investigation on behalf of investors of ZST Digital Networks, Inc. (NASDAQ:ZSTN) over potential violations of Federal Securities Laws was announced.

The investigation by a law firm focuses on possible shareholder claims based on the following allegations. Shares of ZST Digital Networks, Inc. (Public, NASDAQ:ZSTN) traded during 2010 as high as over $10 per share, but fell from under $5 per share to as low as $2.60 after on April 21, 2011, a market analyst published a news report revealing a number of red flags of fraud at ZST Digital.

Namely, in connection with ZST Digital Networks fiscal 2009 and 2008 financial results, the report states that SEC filings report revenues hundreds of times of what is reported to the Chinese regulators and the filings show that ZST Digital Networks paid zero tax in China, but reported substantial amounts to the SEC. The report also identifies a number of other allegations indicating that ZST Digital Networks has misled investors about its customers. These revelations shocked the market, and caused the price of ZST Digital Networks stock to fall.