Clear As Muddy Waters: NQ Mobile Shaky Following Report
Muddy Waters LLC, a research firm that is perhaps best known for exposing the fraudulent actions of the Sino-Forest Corp. back in 2011, recently slammed Chinese wireless provider, NQ Mobile, as we reported. Now, it appears that the report prepared by Muddy Waters accountants may have been justified for the most part.
Recap Of Muddy Waters’ Report
According to the accountants at Muddy Waters, 72 percent of the revenue that NQ Mobile reported in 2012 is a completely fabricated story. The report stated that NQ Mobile’s largest client was the company itself. NQ Mobile had claimed a 55 percent market share in the wireless market in China, but researchers discovered the true numbers were closer to 1.5 percent. Muddy Waters also claimed that the products, such as Antivirus 7.0, offered by the company leave customers in danger of being hacked. The report called the products spyware and said they were completely useless.
Updated Version Of Muddy Waters’ Findings
Three accounting experts have looked into the report filed by Muddy Waters that claimed NQ Mobile to be a “massive fraud.” Their findings are somewhat disturbing.
The experts agree that Muddy Waters LLC was right to focus on the delays in payment collection by the Beijing based wireless provider. This delay can have a direct effect on earnings reports and earnings per share each quarter.
The three experts also say that the claims of wrongdoing by NQ Mobile in regards to its accounting practices may be unfounded. The new report says that the company may have been completely aboveboard with how it raised funds during its IPO in the United States.
NQ Mobile Inc. (ADR) (NYSE:NQ) Stock Movement
Since the original report by Muddy Waters researchers first hit the street, NQ Mobile Inc. (ADR) (NYSE:NQ) has suffered massive hemorrhaging in regards to stock price. The company plunged more than 60 percent in value during the first three days after the report was released. At the closing bell on November 1st the loss had been reduced to 44 percent.
Rocky Lee told Bloomberg, “I am on the fence. When I see a short seller report, I expect it to be indisputably convincing and this one, unlike some of (Carson) Block’s other, better reports, does not do it for me.” Lee is the Asia managing partner at Cadwalader, Wickersham & Taft LLP. He is also the head of the Greater China Corporate Practice for the Beijing based law firm.
Current Stock Information
At the time of this writing, NQ Mobile Inc. (ADR) (NYSE:NQ) had not moved, but is holding steady at $12.78 per share.
Disclosure: Author represents that he has no position in any stocks mentioned in this article at the time this article was submitted.
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