- In an open letter on July 6, 2014, Muddy Waters highly suggested that Ms. Han stepped down at NQ Mobile due to problems (fraud concerns).
- Ms. Han's recent departure from Wuxi PharmaTech (citing personal reasons), shows that she did not step down from NQ Mobile over "fraud concerns".
- Shares of NQ Mobile should rebound from the unwarranted sell-off two weeks ago, due to misrepresentations that Ms. Han had "quit" due to fraud concerns at NQ Mobile.
On July 3, 2014, NQ Mobile (NYSE:NQ) issued a press release talking about the changes to its Board of Directors and provided a status update of the 2013 annual audit. In that press release, NQ Mobile stated:
"... Ms. Ying Han, the current Chair of the Audit Committee has informed the Board that she would be stepping down from the Board due to personal reasons not related to her role at the Company effective on July 6, 2014. There are no disagreements between Ms. Han in her capacity as Chair of the Audit Committee and the Company."
However, just three days later, in a letter titled NQ Oops, Muddy Waters ("MW") indicated that Ms. Han's resignation shows the corrupt nature of the "independent" investigation that NQ Mobile's directors conducted.
By the tone of the letter, it is quite obvious that MW didn't believe for one minute that Ms. Han was stepping down for "personal reasons." Instead, MW stated that it was obvious that Ms. Han resigned because of problems with NQ itself.
"Ms. Han's resignation lays bare the corrupt nature of the "independent" investigation NQ's directors conducted. While NQ claims that Ms. Han resigned for "personal reasons," it is obvious she resigned because of problems with NQ itself." - Muddy Waters
So what was their reasoning? MW based it on the fact that Ms. Han was still the chairman of the audit committee at Wuxi PharmaTech (NYSE:WX). Because she was still part of the team at Wuxi, MW believed that those "personal reasons" was most likely a ploy by NQ Mobile to hide the real truth of why she was really leaving.
So what happened next? Just a day or two later, Ms. Han announced that she was stepping down from the WuXi Board of Directors. Her reasoning...yep, you got it, personal reasons.
So here we have Ms. Han stepping down for personal reasons not only at NQ Mobile, but at Wuxi PharmaTech also. Looks like the speculation from short sellers has missed the mark once again.
It's no secret that speculation runs rampant on Wall Street as investors everywhere are doing their best to read between the lines in order to make their next big move.
Certainly Ms. Han's departure took things to a whole new level. The biggest issue was the fact that she was serving as the chair of the Audit Committee at NQ Mobile. Speculation went a bit overboard as you can see from the report by MW. Unfortunately, the damage was already done as shares closed down more than 32% that day.
At the same time, knowing now that Ms. Han's departure looks to be truly genuine, leaving for personal reasons and not because of problems with companies, should start to generate some sort of boost/catalyst for investors.
I believe that shares of NQ Mobile should rebound from the unwarranted sell-off two weeks ago, due to many misrepresentations in the media that Ms. Han had "quit" due to fraud concerns at NQ Mobile.
Seeing Ms. Han step down from multiple positions within different companies shows you that there is a lot more than meets the eye. If Ms. Han thought something was fishy at NQ Mobile, then why did she step down at other positions?
It's not rocket science to see the shorts jumping on the fraud train with every chance they get. They are betting that shares will continue to fall and what better way to do that than by throwing out fraud speculations left and right.
At the end of the day though, isn't it a bit disconcerting when time after time, those short seller speculations turn out to be a big Oooops?
Many of the claims have already been refuted and cleared not only by NQ Mobile's independent investigation, but by two highly respected firms with well-established reputations, Shearman & Sterling LLP, and Deloitte & Touche Financial Advisory Services Limited. As the independent report stated, there was no evidence that NQ Mobile had engaged in the fraudulent conduct alleged by Muddy Waters.
Last but not least, in the press release, NQ Mobile already appointed Ms. Han's replacements (Max Yao and Justin Chen). This goes to show that the company was on top of the situation and was not only able to execute at a high level, but was able strengthen its team.
Of course, any kind of company departure (especially in NQ Mobile's case), is looked upon as a very negative thing. Company departures can mean a wide variety of things. I like to think of it as insiders buying or selling shares. Everybody knows that insiders buy shares for only one particular reason (to make money), selling shares on the other hand could mean a hundred different things. In this case, Ms. Han left for personal reasons and left on good terms with NQ Mobile.
Tradestar, a Seeking Alpha Contributor said it best when he said:
"Investors should no longer consider Ms. Han's departure a major red flag in terms of issues between the audit committee and company or auditor, but more of a consideration of the transition risk between Mr. Yao, NQ and PWC."
Another thing going for investors is that PwC is still NQ's auditor as both parties are continuing to work on completing the 20-F. If the relationship was so bad or stressed, you would think that PwC would have walked away a long time ago. The fact that they haven't, only hinders the short sellers' arguments.
Over the last nine months, NQ Mobile has become a battleground stock as well as a very hot topic in the news. An investment in this type of field requires investors to have a high risk tolerance, and is not suitable for those without. Investors on either side of this trade should carefully consider hedging their positions if they have not already done so. Like the old saying goes, it's better to be safe than sorry.
Disclosure: The author is long NQ. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.