(Adds Muddy Waters' comment; updates shares)
By Soham Chatterjee
June 4 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
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
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 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