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  • NQ Mobile Fraud Allegations Suppress Shares 4 comments
    Jan 3, 2014 8:57 AM | about stocks: NQ

    NQ Mobile (NYSE: NQ) has been at the center of discourse over the past several months. This comes after Muddy Waters LLC, a research firm set on unearthing fraudulent accounting practices in China, blacklisted NQ Mobile. Before then, NQ Mobile had been on an iconic bull run. However, Muddy Waters' negative report put immense downward pressure on the share price, opening up of slew of varied comments on both NQ Mobile and Muddy Waters.

    Allegations Grounded on prevalent sentiment

    Past experience with Chinese firms listed on domestic securities exchange platforms presents the perfect backdrop to validate Muddy Water's allegations. Tracking back to 2012, ChinaCast Mobile was delisted from the NASDAQ following its failure to file vital documents with the Securities and Exchange Commission not once, but twice. In December 2010, it failed to file its 10-K report with the SEC. Later, in the quarter ended March 2011, it yet again failed to file its 10-Q report.

    ChinaCast Mobile's delisting from NASDAQ also came around the same time when the SEC accelerated its push to flush out corrupt Chinese firms. At the time, the SEC was viewed in increasingly negative light for allowing fraudulent companies to slip through the cracks. Things reached the climax when reverse merger fraud by Chinese firms came to the foreground. The SEC opened up a probe that implicated Chinese affiliates of major accounting firms including Delloite, KPMG, Pricewaterhousecoopers as well as Ernst & Young.

    This past experience with Chinese firms made Muddy Waters' allegations believable. Some of the major allegations made by the research firm include claims that NQ Mobile secretly operates a shell company called Yidatong. According to Muddy Waters, not only do NQ Mobile and Yidatong share the same email servers, but Yidatong's 75 percent owner, Ms Rong Xu, has previously worked with NQ Mobile. In addition, Muddy Waters claims that Ms. Rong Xu is a director in a company called Yiteng Beijing Technology; the same company that owns 25 percent of NQ Mobile. Adding to a slew of other equally weighty allegations, Muddy Waters also claims that NQ Mobile's antivirus collects significant amount of sensitive data and sends it to a data analytics firm in China.

    Section of Investors Not Swayed by Negativity

    As earlier mentioned, NQ Mobile was on an incredible bullish run before the allegations. This was in part because of its impressive Q3 results. The company's top line grew 110 percent year-on-year while non-GAAP operating income grew 150 percent on the same basis.

    In view of these great fundamentals, a section of institutional investors believe that Muddy Waters' allegations are a hard sell. Altimeter Capital Management LLC and Oberweis Asset Management Inc.have increased their holdings in NQ Mobile despite close to half of its shares being under short interest.

    On one end, NQ Mobile's fall could be imminent. On the flipside, however, its shares could rise incredibly if it manages to get through this dark phase. The buy/sell decision on NQ Mobile is undoubtedly a huge leap of faith.

    Stocks: NQ
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Comments (4)
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  • JMstocks75
    , contributor
    Comments (250) | Send Message
     
    i wouldn't call it a leap of faith, I follow the money, look who is holding, is they really any other way to make a decision to buy??
    3 Jan, 06:45 PM Reply Like
  • SimonTIghe
    , contributor
    Comments (43) | Send Message
     
    "Muddy Waters claims that Ms. Rong Xu is a director in a company called Yiteng Beijing Technology; the same company that owns 25 percent of NQ Mobile".

     

    So YBT holds a 25% stake of NQ mobile. Did you confirm this, they would be the largest shareholder by a good stretch. In curious.
    5 Jan, 01:04 PM Reply Like
  • SimonTIghe
    , contributor
    Comments (43) | Send Message
     
    "This past experience with Chinese firms made Muddy Waters' allegations believable".

     

    Is it your experience we are talking about here? So because fraud has previously occurred with Chinese stocks listed on US exchanges, allegations made against a given Chinese stock are thus believable, that is your rational? How's about muddy Waters back up those allegations with actual facts, I don't know, it seems like a good starting point in ascertaining just how 'believable' those allegations are to begin with.

     

    What we do know is Muddy Waters are wholly unqualified to know any of these allegations, they have not performed DD with any of NQ's channel partners, YBT or with NQ directly (they likely made some huge assumptions from a lack of facts).MW are not a 'firm', they have no known address or employees apart from someone called Carson Block. They have a 0-7 record in calling out non reverse merger stocks.

     

    Morgan Stanley are a real firm, with a real due diligence function. Toro investments are a real investment firm, who spent 3 weeks in China pulling the company to pieces, they reviewed the channel partners and NQ directly and confirmed all allegations made by MW as fiction. NQ mobile opened its doors to all investor DD, and as a result of extensive DD reviews by institutional investors/investment banks, many subsequently increased their investments.

     

    But you in your wisdom are prepared to believe in a fictional firm who in fairness are shorting the stock heavily (that's a clue there...they are not performing a public service, they are interested in the price going down).

     

    If I looked at this from a neutral perspective and using a bit of common sense, I'd deduce the motivation of a short seller in a second or two and the word believable wouldn't enter my head (either for or against the protagonists).

     

    Listen, have a look at where the smart money is on this, that says it all.

     

    I can't even begin to explain to you how much of a leap of faith 'your' assessment is.
    5 Jan, 01:48 PM Reply Like
  • SimonTIghe
    , contributor
    Comments (43) | Send Message
     
    It's a shame you wont defend your piece. Do you normally post and run?
    9 Jan, 11:43 AM Reply Like
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