NQ Mobile says committee finds no evidence of fraud, shares jump

Wed Jun 4, 2014 11:20am EDT

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(Reuters) - Chinese mobile security software maker NQ Mobile Inc said an independent committee had found no evidence of fraud, as alleged by short-seller Muddy Waters Research Group.

NQ Mobile's shares rose as much as 34 percent on Wednesday, after the company said the committee also found no evidence that its revenue and cash balances were inconsistent with public disclosures.

Muddy Waters had called NQ Mobile a "massive fraud" in October, a charge the Chinese company rejected.

The short-seller had said NQ Mobile's cash balances were "highly likely to not exist."

Muddy Waters had also said that at least 72 percent of NQ Mobile's purported 2012 revenue from sales of its security products in China was fictitious, coming from a shell company called Yidatong that the short-seller alleged was controlled by the Chinese company. (r.reuters.com/fyj24v)

The committee found that NQ Mobile's revenue and cash flows from customers to carriers through Yidatong were verifiable, the company said on Wednesday.

Muddy Waters, however, stood by its allegations.

"This press release is just another in a long line of whitewashes carried out by China companies that are defrauding U.S. investors, written by directors in China who have no accountability to U.S. authorities," Muddy Waters founder Carson Block said in an emailed response.

A day after Muddy Waters made the allegations, NQ Mobile released details of its bank accounts in mainland China and Hong Kong and also threatened legal action against the short-seller.

Short-sellers 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, returning them to the lender and gaining from the difference.

The investigation was conducted by a committee comprising four independent directors of NQ Mobile, along with independent counsel Shearman & Sterling LLP and forensic accounting firm Deloitte & Touche Financial Advisory Services Ltd.

NQ Mobile's shares were up 27.5 percent at $9.72 in late morning trading on the New York Stock Exchange. Up to Tuesday's close, the stock had lost more than a third of its value since Muddy Waters made its allegations.

(Additional reporting by Lehar Maan in Bangalore; Editing by Kirti Pandey)

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