Reuters: Technology News: NQ Mobile hits back at Muddy Waters, releases account details

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NQ Mobile hits back at Muddy Waters, releases account details Oct 25th 2013, 17:34 Share this Email Print Reprints By Paul Carsten and Soham Chatterjee Fri Oct 25, 2013 1:34pm EDT (Reuters) - NQ Mobile Inc, the Chinese mobile security software company labeled a "massive fraud" by Muddy Waters Research Group, hit back on Friday by releasing details of its bank accounts and threatening legal action. NQ Mobile described as "false and inaccurate" the allegations by Muddy Waters, which is owned by short-seller Carson Block, but said a special committee of independent directors would investigate. "Could it be a fraud? Sure. Time will tell," said Blake Walker, chief investment officer at Grandeur Peak Global Advisors, which holds a 2.3 percent stake in NQ Mobile. "But actions speak louder than words and we're encouraged at the formation of the special committee who will independently verify or refute all of allegations," he said. Grandeur Peak has no immediate plans to cut or raise its stake in NQ Mobile, Walker said, adding that many of the allegations in the Muddy Waters report have come up before. Short-sellers such as Muddy Waters LLC make money when the stock price of a company drops. They sell borrowed shares in the hope of buying them back at a lower price and return them to the lender, gaining from the difference in price. Trading in NQ shares remained halted on the New York Stock Exchange on Friday. The company's stock dropped by nearly 50 percent on Thursday, wiping out $500 million of market value, after Muddy Waters released its report. "We know no better method than to just completely open up the kimono and say, 'Here's our cash balances by account,'" NQ Mobile co-Chief Executive Omar Khan told Reuters in Beijing. Muddy Waters said that at least 72 percent of NQ's purported 2012 revenue from sales of its security products in China was fictitious, coming from a shell company called Ideating that the research firm alleged was controlled by NQ. Muddy Waters also said that NQ's cash balances were "highly likely to not exist." (r.reuters.com/fyj24v) NQ responded by publishing a list of 14 bank accounts in mainland China and Hong Kong that showed deposits totaling the equivalent of about $295 million. Oppenheimer analyst Andy Yeung said the allegation that "the cash is not real" was the most serious, but could be addressed by disclosure and independent verification. Yeung cut his rating on NQ's stock to "perform" from "outperform". Up to Wednesday's close, NQ Mobile's stock had risen about 280 percent since the start of the year. It last traded at $12.04 on Thursday. "The company believes that the allegations and accusations set forth in the Muddy Waters report are false and inaccurate and contain numerous errors of facts, misleading speculations and malicious interpretations of events," NQ Mobile said in a statement. Muddy Waters, whose reports have previously unleashed scandals involving other Chinese U.S.-listed companies, was not immediately available for comment on Friday. Its previous targets have included Sino-Forest Corp and Longtop Financial Technologies Ltd, which gained notoriety for fraudulent reporting and asset stripping. Khan said NQ's management was 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," he told Reuters. NQ has raised $330.6 million from stock and bond sales over the past three years. The company completed the sale of $172.5 million in convertible bonds this month. Morgan Stanley and Deutsche Bank unit Deutsche Bank Securities Inc bought $22.5 million of that offer. NQ 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. It raised an additional $69 million in a secondary offering last year. Morgan Stanley and Deutsche Bank declined to comment. Piper Jaffray did not respond to an email request for comment. (Additional reporting by Umesh Desai in Hong Kong; Editing by Kenneth Maxwell, Kirti Pandey and Ted Kerr) Link this Share this Digg this Email Reprints

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