Heavily shorted NQ Mobile Inc (ADR) (NYSE:NQ), a global provider of mobile Internet services, announced on Monday, October 27th that it had filed its annual report for the year ended December 31, 2013 (Form 20-F) with the U.S. Securities and Exchange Commission over the weekend. Officially filing this delayed annual report means that NQ Mobile, who had been accused of accounting fraud by research firm Muddy Waters, is now in full compliance with all SEC regulatory requirements, according to the company.
Statement from NQ Mobile CEO
“We are pleased to be able to return our full attention to growing our business and increasing long term value for our shareholders,” noted Henry Lin, Chairman and co-Chief Executive Officer of NQ Mobile Inc (ADR) (NYSE:NQ), in the company’s statement released today. “During this extensive process, we have learned much about how we can improve some of our practices, including corporate governance, disclosure, and internal procedures. We are fully committed to carrying out such improvements. As we turn the page and look to the future, I want to thank all our employees and loyal shareholders who have confidence in our company and our prospects.”
Accusations of fraud
Carson Block of research firm Muddy Waters published a report earlier this year alleging a variety of accounting improprieties at NQ Mobile Inc (ADR) (NYSE:NQ), including phantom revenues and unusual expenditures. The company’s investigation has determined that while there were accounting and compliance lapses, the more serious allegations are not substantiated. To wit:
“The Company’s cash (and cash equivalents) of approximately $283 million as of December 31, 2013 was verified and found consistent with public disclosures and major expenditures were confirmed as having been incurred for legitimate business purposes.
The Company’s acquisitions were evaluated using reasonable metrics and internal due diligence processes, and those acquisitions have contributed to increasing the Company’s revenue and user traffic.
The Audit Committee was able to conclude that there was no evidence of an effort within the Company to delete any documents relevant to the Special Committee’s investigation.”
Internal investigation and external audit
After the allegations surfaced, NQ Mobile Inc (ADR) (NYSE:NQ) initiated both an internal investigation and hired the global law firm of Shearman & Sterling LLP. assisted by Deloitte & Touche Financial Advisory Services Limited, and Marcum Bernstein & Pinchuk LLP, the Company’s independent auditor, to undertake a full review of the business and financial affairs of the firm.
Muddy Waters has not yet responded to the latest news.
NQ Mobile Inc (ADR) (NYSE:NQ) is up almost 9% in early trading.
UPDATE 11:07AM EST – Muddy Waters has sent the following statement to ValueWalk
NQ remains a massive fraud, but its 20-F filing today was no surprise. After dismissing PwC, NQ specifically chose Marcum and its principal Drew Bernstein as its auditor because they have publicly criticized short sellers in the past, and have issued clean audit opinions on numerous questionable Chinese reverse-merger companies. The timing of the filing was no surprise either, given the substantial recent run-up in the stock price, as insider trading clearly continues to be rampant in this stock. We hope regulators will step in soon before further damage is done to investors.