Morgan Stanley (NYSE:MS) acquired additional shares in NQ Mobile Inc (NYSE:NQ), a Chinese mobile internet service provider based on its latest 13G filing with the Securities and Exchange Commission (SEC).

NQ Mobile

Based on its filing, Morgan Stanley (NYSE:MS) bought an additional 276,855 shares of NQ Mobile Inc (NYSE:NQ), bringing its stake in the company to 9,606,276 shares or 6.3%. In December, the global financial services firm disclosed a 5% stake in the company.

Massive fraud

The latest investment of Morgan Stanley (NYSE:MS) is a clear demonstration of its confidence  in the Chinese mobile internet service provider despite the allegations of Muddy Waters, a short-selling firm that it is a massive fraud.

According to the short seller, the shares of NQ Mobile Inc (NYSE:NQ) are worth nothing. Muddy Waters claimed that 72% of the company’s reported security revenue China in 2012 was fabricated, and its actual market share in the country was only 1.5% compared to 55% based on its reports. The Chinese mobile internet service provider denied the accusations.

NQ Mobile disproving allegations

The Chinese mobile internet service provider established an independent review and engaged the services of law firm Shearman & Sterling to work with the forensic accounting team at Deloitte & Touche to disprove the claims against it by the short selling firm. NQ Mobile Inc (NYSE:NQ) also worked with law firm Skadden Arps, Deutsche Bank AG (NYSE:DB) (FRA:DBK) and Morgan Stanley (NYSE:MS) to resolve the issue.

Closer examination of books

Muddy Waters recently encouraged NQ Mobile’s auditor,  PriceWaterhouseCooper, to demand that it should be allowed to take a closer examination of the company’s books. The short seller also suggested that the auditor should consider resigning if it feels that its brand is worth preserving once NQ Mobile does not allow a thorough examination of its books.

Strategic partnerships

Despite the controversies, several companies entered strategic partnerships with NQ Mobile Inc (NYSE:NQ). Most recently, its subsidiary FL Mobile signed an agreement with Ubisoft Entertainment SA (EPA:UBI), a French video game developer and publisher for new game operations. NL Mobile receive the right to exclusively operate Ubisoft’s popular and highly-rate mobile game Rabbids Big Bang in China.

In December, the Chinese mobile internet service provider signed a partnership agreement with Ingram Micro Mobility to distribute its three security applications in Africa, Europe, and the Middle East.

Prior to that, China Unicom (Hong Kong) Limited (NYSE:CHU) agreed to distribute the NQ Family Guardian parental control and monitoring suite through its WoStore. China Unicom started distributing NQ Mobiles services last November 10, 2013.