) recently responded to a Muddy Waters' research report dated Jul
7, 2014. The company cited a report from an independent
investigation to defend itself against the allegations of Muddy
waters. Shares of NQ Mobile were up 6.8% (28 cents) following the
This investigation was conducted by a Special Committee comprising
four of its independent directors along with two renowned firms,
Shearman & Sterling LLP and Deloitte & Touche Financial
Advisory Services Limited. The aim of the investigation was to
determine whether NQ Mobile had resorted to any unfair means or
The results of the aforesaid investigation were revealed to the
public soon after it was over. Per the investigation, NQ Mobile had
submitted all material information within the stipulated timeframe
as well as in full compliance with all Securities and Exchange
Commission (SEC) regulations. Hence, the Committee concluded that
no fraudulent practice had been adopted by NQ Mobile.
Muddy Waters, LLC is a pioneer in the field of investment research.
It conducts research on business fraud, accounting fraud and other
fundamental problems. It also engages in short selling activities.
In Oct 2013, Muddy Waters had accused NQ Mobile of being a "massive
fraud" with at least 72.0% of its 2012 China security revenue
fictitiously coming from a shell company called Yidatong, which was
actually owned by NQ itself.
Moreover, NQ's Antivirus 7.0 was termed to be spyware by the
investment research firm. Additionally, Muddy Waters had accused
the company of flaunting an inflated cash balances just to gain the
confidence of investors. Following this report, NQ Mobile had
almost faced a share trading blackout and even threatened to sue
On Jul 7, 2014 Muddy Waters again issued a report in which
alongwith the prior charges; it also accused NQ Mobile of
concealing important information from public including the stepping
down of the head of the company's audit committee, Ying Han due to
personal issues not related to NQ Mobile in any way.
NQ Mobile responded to these accusations by conducting the
aforementioned investigation. We believe that the results of the
investigation are a major positive for NQ Mobile as it will help
the company to regain the confidence of its shareholders, going
NQ Mobile reported mixed fourth-quarter results. The company's
better-than-expected user growth in FL Mobile's gaming platform and
new game launches remain the growth catalysts. The company's
associations with Sprint and Samsung are positives.
However, the company's margins are adversely impacted by higher
expenses and higher contribution of low-margin businesses.
Moreover, competition from
Citrix Systems Inc.
) remains a major headwind, going forward.
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