Muddy Waters Raises Fresh Questions About NQ Mobile

New allegations against NQ Mobile Inc (NYSE:NQ) from Muddy Waters. But first one interesting paragraph from the report.

If NQ’s international revenue were anywhere close to real, then NQ would have cracked the code in marketing to the global emerging markets customer. In other words, NQ claims to generate significant revenues in numerous countries with different ethnicities, cultures, and languages. NQ would not be the first company to experience such success, of course. Procter & Gamble, Coca-Cola, and a handful of other companies come to mind as having succeeded across numerous emerging markets. However, dollar for dollar, NQ appears to have been the most successful pan-emerging market marketer ever!

The Saudi Arabian website is NQ’s only Arabic website. We used the local versions of Google  to search for NQ websites in the UAE, Qatar, Egypt, Jordan, and Turkey. They don’t exist.

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Full report below.


January 13, 2014

Re: NQ Mobile Inc.

Dear Messrs. Nally, Moritz and Chao:

I am writing to bring to your attention serious accounting and disclosure issues at your client NQ Mobile Inc. I believe these allegations deserve the immediate attention of PwC’s Global Chairman, U.S. CEO and the PricewaterhouseCoopers Zhong Tian (“PwC China”) audit engagement partner for the company.

PwC is the brand under which the member firms of PricewaterhouseCoopers International Limited (“PwCIL”) operate and provide professional services. Together, these firms form the
PwC network. NQ Mobile Inc (NYSE:NQ) is a China-headquartered company, with American Depositary Shares (ADSs) listed on the New York Stock Exchange. NQ Mobile Inc’s most recent audit opinion is signed by PwC member firm PricewaterhouseCoopers Zhong Tian CPAs Limited Company in Beijing, the People’s Republic of China.

As has been widely reported in the press, Muddy Waters Research issued a report entitled
“Initiating Coverage on NQ Mobile Inc (NYSE:NQ) – Strong Sell” on October 24, 2013. In this report we detailed evidence supporting our belief that:

NQ Mobile Inc (NYSE:NQ) is a massive fraud. We believe it is a “Zero” because the majority of NQ’s purported 2012 China security revenue is fictitious.

NQ’s Antivirus 7.0 is unsafe for sale to consumers, and we consider it to be spyware that makes users’ phones vulnerable to cyber attack.

NQ’s purported 2012 international revenue of $36.5 million, which includes revenue from the United States, is likely less real than its PRC revenue.

The recent pivot to advertising and gaming is merely an attempt to change to a fraud that NQ Mobile Inc (NYSE:NQ) hopes will be less obvious.

NQ Mobile Inc (NYSE:NQ)’s acquisitions are highly likely to be corrupt and part of the fraud.

NQ Mobile Inc (NYSE:NQ)’s cash balances are very likely non-existent at the level reported. In NQ’s 2012 20-F, PwC classified all cash and term deposits as Level 2 assets. NQ’s purported movements of cash from its IPO almost certainly did not occur due to PRC FX controls. We believe NQ’s term deposits are likely fraudulent.

Full PDF for download here and below.

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