NQ Mobile 'Massive Fraud' Claim Prompts Transparency Push

Image: NQ Mobile 'Massive Fraud' Claim Prompts Transparency Push NQ co-chief executives Henry Lin, left, and Omar Khan in Beijing, Oct. 25, 2013.

Friday, 25 Oct 2013 09:13 AM

By Michael Mullins

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NQ Mobile's "massive fraud" label by Muddy Waters Research Group has caused the Chinese mobile Internet company to announce that it would display its accounts to dispel the accusations which it described as false.

In an interview with Reuters, executives of the New York-listed NQ said the company will hold an investor conference call before U.S. markets opened on Friday morning to respond to a report by the U.S.-based short seller that said the "vast majority" of NQ's reported China revenue was fraudulent.

"These are fully false allegations," said Henry Lin, co-founder and co-chief executive of NQ.

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Muddy Waters reports have previously unleashed scandals involving other Chinese U.S.-listed companies, including Sino-Forest Corp, Longtop Financial Technologies Ltd. and China MediaExpress Holdings Inc. Its report on Thursday wiped more than $500 million off NQ's market value, nearly half of its capitalisation.

"We know no better method than to just completely open up the kimono and say, 'Here's our cash balances by account,'" Omar Khan, NQ's co-chief executive, said in the interview in Beijing.

Khan said NQ management is dealing with the report as a matter of urgency. "We will use all means necessary and reasonable to protect our shareholders, our employees, our company, and our investors."

On Thursday Muddy Waters initiated coverage of NQ Mobile, saying that at least 72 percent of NQ's purported 2012 China revenue from its security products is fictitious, coming from Yidatong (YDT), a company that Muddy Waters alleged NQ controls.

"NQ's largest customer is really NQ," the report read. "Our due diligence process included visiting 10 sites purportedly occupied by YDT, all of which were empty or did not exist."

Over the last three years, NQ has raised $330.6 million from stock and bond fund-raising. Earlier this month, it completed the sale of US$172.5 million in convertible bonds. Morgan Stanley and Deutsche Bank unit Deutsche Bank Securities Inc purchased $22.5 million of that offer.

The company was founded in 2005 and listed on the New York Stock Exchange in 2011 in an $89 million fundraising that was underwritten by Piper Jaffray Companies, and raised an additional $69 million in a secondary offering last year.

Email requests for comments were not responded to by Piper Jaffray, Reuters noted, while both Deutsche Bank and Morgan Stanley declined to comment.

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