NQ Mobile Inc (ADR) (NYSE:NQ) launched an independent investigation into its accounting practices after fraud accusations from Muddy Waters. Today the company has announced that the investigation found no evidence that it is guilty of the “fraudulent conduct” Muddy Waters founder Carson Block has accused it of. However, it looks like the major media outlets are missing a big point in the press release.

NQ Mobile
NQ Mobile

Read NQ Mobile’s whole press release

Take a look at this paragraph, which was buried in the release (emphasis mine):

“Despite the Investigation Team’s extensive review of documents and data provided by sources both within and outside the Company, the Investigation Team could not verify that the devices it collected and copied contained all responsive information at the time the copies were made. On many devices, the Investigation Team observed indications that some information might be missing, and the Company’s management and staff were unable to provide a credible explanation for what the Investigation Team observed.”

Maybe there is a good explanation for the missing information, but it sounds like no one really knows. This could be a weak spot in NQ Mobile Inc (ADR) (NYSE:NQ)’s results that might offer an opening for determined short-sellers and critics.

Muddy Waters reviews NQ Mobile investigation

The announcement comes one day after we reported that Regal Point, which is also short NQ Mobile Inc (ADR) (NYSE:NQ), said the Chinese company’s stock would soar if the investigation turned up no evidence of fraud.

Reuters reports that a spokesperson for Muddy Waters said they are reviewing the results of the investigation. In an emailed statement to Bloomberg Businessweek, the firm said again that NQ is “unequivocally a fraud.” The firm has accused NQ Mobile Inc (ADR) (NYSE:NQ) of overstating its revenue and cash balances in its public financial statements. The company delayed the release of its most recent financial statements twice, pending the results of this investigation.

Muddy Watters alleged that at least 72% of NQ Mobile Inc (ADR) (NYSE:NQ)’s reported revenue in 2012 came from a shell company NQ itself controlled. However, NQ said today that a special committee was able to verify all of its revenue and cash flows from customers to carriers through the company Muddy Waters said was a shell company.

NQ Mobile explains the investigation

In the press release today, NQ Mobile Inc (ADR) (NYSE:NQ) provided a through explanation of how the investigation was conducted. Its board created a special committee consisting of four of its independent directors. They looked at the amount of cash reported on NQ’s balance sheets and confirmed bank balances through both mail and in-person visits.

The committee also examined “selected financial information and records” and “selected databases” for signs of fraud or “improper financial reporting.” The members interviewed over 50 executives at NQ Mobile Inc (ADR) (NYSE:NQ) who were implicated by the first report from Carson Block’s firm. In addition, they investigated NQ’s business partners and reviewed the company’s major acquisitions.