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It's now been 3 years since a series of accounting scandals toppled a handful of overseas-listed Chinese high-flyers, starting with a financial services company called Longtop. The scandals were sparked by opportunistic short sellers, who launched a steady stream of similar assaults highlighting the aggressive accounting practices at many Chinese companies. But after Longtop and 1 or 2 other big names fell, all major companies managed to repel the attacks and get on with business. Now some investors might be wondering if another major player may be set to fall, following new ominous signs coming from embattled security software maker NQ Mobile (NYSE: NQ).

I followed NQ Mobile when it made its New York IPO in 2012 under the its previous name of Netqin (previous post), but stopped tracking the company after that due to its relatively small size. It caught my attention again last October, when it made a surprise offering of nearly $200 million in convertible bonds. (previous post) The move came amid a wave of similar offerings by China's top Internet names, but surprised me because NQ Mobile wasn't generally considered to be in that league.

But NQ didn't have much time to bask in the glory of its successful offer, as the company came under attack later in October by infamous short seller Muddy Waters, which called NQ a "massive fraud." (previous post) The company's shares tumbled on the report, which claimed that at least 72 percent of its 2012 mobile security revenue was fictitious.

Since then NQ has been regularly in and out of the headlines, with top managers denying the Muddy Waters claims and announcing separate upbeat news in a bid to regain investor confidence. Other Chinese companies that came under short seller attacks used a similar approach, and many eventually saw their shares return to or ever surpass previous levels.

NQ shares followed a similar pattern and slowly rose to regain most of their losses by March this year. But since then they've shown signs of weakness amid lingering doubts over the company's finances. I'll admit that I previously thought the weakness could represent a good buying opportunity, since there were no signs that the US securities regulator was set to launch a formal investigation of the company.

But any hopes for some upside have suddenly evaporated with the latest revelations hinting that perhaps the company was playing some aggressive accounting games. According to the latest media reports, the head of NQ's audit committee is stepping down, which is always one of the earliest indicators of disagreements over accounting. (English article) Compounding the problem are revelations that NQ's external auditor, PricewaterhouseCoopers Zhong Tian, wants to expand its review of the company's books for 2013.

Not surprisingly, investors weren't too reassured by this latest news and dumped NQ shares in the latest trading session on Wall Street. The stock tumbled 32 percent during the session to end at $4.58. That's about one-fifth of their levels from before the first attack, and one quarter their levels the post-attack high they hit in March.

The big obvious question now becomes: Is the end near for NQ? The likelihood of such a fate is certainly growing and chances are perhaps now as high as 60 percent. A bad finding or resignation of the account by the external auditor would sharply boost the probability of a corporate collapse, and news of any formal probe by the US securities regulator would probably have a similar effect. If none of those happens, and the auditor finds there's nothing wrong with NQ's books, there's always a chance for some big potential upside for the stock. But for now at least, I would advise long-term buyers and anyone with a low tolerance for risk to avoid this company.

Bottom line: NQ Mobile stands a 60 percent chance of failure following the resignation of the head of its audit committee and extension of an external review of its 2013 financial statements.

Disclosure: None.

Source: NQ Mobile: Destined For Extinction?