NQ Mobile Inc (ADR) (NYSE:NQ) revealed last week that the independent investigation of its accounting practices found no evidence of fraud. However, it doesn’t look like the debate about the Chinese company’s accounting practices will be ending soon. The only question now is whether the case about NQ Mobile will follow the same track as one of Muddy Waters’ past targets—Sino-Forest Corporation (TSE:TRE) (OTCMKTS:SNOFF).

NQ Mobile

No evidence of fraud found at Sino-Forest

You may remember that back in 2011, an independent committee investigating allegations of fraud at Sino-Forest Corporation (TSE:TRE) (OTCMKTS:SNOFF) also found no evidence of fraud. However, we know how that turned out. Now the former management of the Chinese forestry company faces continuing legal problems. Court documents filed on March 31, 2014 offer a timeline that demonstrates some interesting comparisons and differences between the two cases.

The most interesting comparison is that there appears to be information missing in the investigations of both companies. And yet, in both cases, the independent committee has found no evidence of fraud. In an exclusive interview with ValueWalk, Block noted that there are still many more questions rather than answers in the NQ Mobile Inc (ADR) (NYSE:NQ) case.

“Because the IC [independent committee] has refused to release the details of the investigation, it’s difficult to determine what the missing information is, how the investigator went about their task and what data was tampered with,” Block told ValueWalk. “That said, we know Sino-Forest Corporation (TSE:TRE) (OTCMKTS:SNOFF) came to the same conclusion as NQ but their investigation was significantly stymied by the company’s management.”

ValueWalk has contacted NQ Mobile Inc (ADR) (NYSE:NQ) for a statement regarding the missing information mentioned in its press release. Our request for a comment had not been returned as of this writing.

Sino-Forest creditors sue ex-CEO

Now this is where NQ Mobile Inc (ADR) (NYSE:NQ)’s story significantly diverges from that of Sino-Forest Corporation (TSE:TRE) (OTCMKTS:SNOFF). In March, Cosimo Borrelli, trustee for the Sino-Forest Litigation Trust, filed a case against former Sino-Forest CEO Allen Tak Yuen Chan in the Ontario Superior Court of Justice. Court documents reviewed by ValueWalk show that Chan is accused of overstating Sino-Forest’s revenue. The documents reference “a short seller hedge fund,” which is Muddy Waters. Carson Block’s firm filed a report alleging “fraud, corruption and illegal activity” at Sino-Forest.

Of course the company formed an independent committee to investigate the allegations. Also Sino-Forest had to respond to investigations launched by the Ontario Securities Commission and the Royal Canadian Mounted Police.

Chan accused of frustrating investigators

According to the court documents, Chan worked against investigators who were probing Sino-Forest Corporation (TSE:TRE) (OTCMKTS:SNOFF)’s business operations. The company’s creditors accuse Chan and other senior management of “intentionally” frustrating the investigative efforts of the independent committee and other investigators and “providing false explanations to a number of the questions that had been raised by the hedge funds’ report” and others.

The documents further state that at the beginning of the independent committee’s (IC) investigation, “Chan and his team were ill-prepared or unwilling to address the IC’s questions and concerns in an organized fashion and a significant amount of information that was requested was not provided.” In addition, after documents raised questions about Chan’s relationships with suppliers and other companies Sino-Forest Corporation (TSE:TRE) (OTCMKTS:SNOFF) did business with, management was “unable or unwilling to provide any credible explanation to the issues raised by the documents.”

So this right here is a huge difference between NQ Mobile Inc (ADR) (NYSE:NQ) and Sino-Forest. NQ’s management has never been accused of wrongdoing by anyone, while Sino-Forest’s former CEO is being blamed for the demise of the company.

NQ Mobile unable to issue audited financial statements

But this is where the comparison between Sino-Forest and NQ Mobile Inc (ADR) (NYSE:NQ) gets interesting again. Sino-Forest could not issue its third quarter financial statements in 2011. NQ Mobile has also been unable to issue its financial statements recently.

In Sino-Forest Corporation (TSE:TRE) (OTCMKTS:SNOFF)’s case, the delay in the release of those financial statements was due to the lack of “adequate answers from Chan or Inside Management on certain of the questions that had been raised by Muddy Waters,” the independent committee and others. The release was delayed again because they “continued to fail to adequately answer the questions.”

NQ Mobile Inc (ADR) (NYSE:NQ) has also delayed the release of its audited financial statements. However, the delay is not being caused by uncooperative management, unlike in Sino-Forest’s case.

No evidence of fraud at NQ Mobile

As mentioned earlier, another similarity is that just like in the case of Sino-Forest Corporation (TSE:TRE) (OTCMKTS:SNOFF), an independent committee investigating Muddy Waters’ allegations at NQ Mobile Inc (ADR) (NYSE:NQ) has found no evidence of fraud. But as we noted last week, that NQ stated in its press release that the independent committee noted that there was some missing information. In an exclusive interview with ValueWalk, Muddy Waters founder Carson Block says the findings of the independent committee’s investigation are practically worthless.

“By the committee’s own admission, there was significant data tampering,” Block said. “It’s therefore ridiculous that the committee, which is comprised entirely of Chinese directors who are de facto unaccountable to U.S. authorities, to claim to have concluded there was no wrongdoing. NQ Mobile remains an unequivocal fraud.”

NQ Mobile debate not laid to rest yet

Block says they continue to investigate NQ Mobile Inc (ADR) (NYSE:NQ) and that he doesn’t think the debate over the company will be over “until regulators step in or NQ’s shares go to zero.” He noted that the big issue standing over the Chinese company is that it still hasn’t provided shareholders with audited financial statements. Until it does, he thinks there are just too many unanswered questions.

As of this writing, American depository receipt shares of NQ Mobile Inc (ADR) (NYSE:NQ) had risen by more than 2%.

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