NQ Mobile Inc (ADR) (NYSE:NQ) had been about to return to levels it hasn’t seen since short-selling firm Muddy Waters accused of accounting fraud in October. However, the company’s weaker-than-expected earnings report last week sent shares plunging by 21% the day after its earnings report. Bloomberg reports that this is the largest decline NQ Mobile has seen in five months. When Carson Block revealed his short thesis for the Chinese company, shares initially fell 44% as investors became concerned about his allegations that NQ is over-stating its revenue.

NQ Mobile

Block: NQ Mobile’s report proves it’s a fraud

NQ Mobile Inc (ADR) (NYSE:NQ) said last week that it would release the results of the internal investigation it launched in October along with its annual report. Some analysts speculated that, along with the 31% lower-than-expected earnings, investors may have been disappointed that the company did not release the results of that audit along with its quarterly report last week.

According to Bloomberg, major investors like Toro Investment Partners and Oberweis Management returned to NQ Mobile Inc (ADR) (NYSE:NQ) last month speculating that the allegations raised by Block would be proven incorrect. However, Block warned last week that the company’s huge miss on earnings meant that he was right in calling NQ Mobile a “fraud.”

In its quarterly report, the Chinese company also reported that there was an accounting error and that its third fiscal quarter results were tainted by an “overstatement” of stock-based compensation. NQ Mobile Inc (ADR) (NYSE:NQ) revised downward its GAAP losses for the third quarter and the full year.

NQ Mobile was worst performer in Bloomberg China index

Last week, Bloomberg’s index of the most-traded Chinese stocks in the U.S. declined by 1.2%, cutting its weekly gain down to 1.5%. NQ Mobile Inc (ADR) (NYSE:NQ) was the worst performer in the index, as shares plunged 25% last week.

Many analysts are warning investors about NQ Mobile Inc (ADR) (NYSE:NQ), not necessarily because of the allegations Carson Block raised, but rather, because of the large amount of short interest in the stock. According to NASDAQ, short increase in NQ Mobile has been rising steadily since the first half of January. As of the end of March, short interest stood at around 13.7 million shares with about 4.8 days required to cover all of it.