Muddy Waters Research recently published a report suggesting that NQ Mobile, a publicly traded mobile security firm that sells anti-malware software around the world, is a “massive fraud.” These accusations are no joke, and it was a scary report to read. The biggest issue appears to be with NQ Mobile’s finances and alleged falsifications of its user base.
NQ Mobile has reportedly said that it’s market share in China is roughly 55 percent, but Muddy Research thinks the company’s real share is closer to 1.5 percent of the market, which means there’s a huge discrepancy in the user base numbers. As a result, NQ Mobile’s revenues are also being called into question, and Muddy Waters thinks about 72 percent of its $32.2 million in revenues are “fictitious.”
Worse, the company claims that the software NQ Mobile does sell is actually just “spyware,” and it’s deeming NQ Antivirus 7.0 “unsafe for sale to consumers” and open for attack from the Chinese government.
“NQ was caught red handed by China’s largest television news organization, CCTV, installing malware on phones in order to sell them the cure,” Muddy Waters alleges, while calling the company’s management “fraudsters.” It also points to a “shell company” called Yidatong, which it says is both a part of NQ Mobile but also the company’s largest customer. Furthering the accusations, Muddy Waters claims NQ Mobile may have hired Omar Khan, who came from Samsung, as a co-CEO in an effort to establish a “front,” in the U.S.
NQ Mobile CEO Omar Khan responded in a statement to Reuters. “We know no better method than to just completely open up the kimono and say, “here’s our cash balances by account’,” Khan said. In another statement provided to TechnoBuffalo, NQ Mobile said the report was “false and inaccurate.” The company said “the allegations fail to take into account various factors necessary to understand the matters addressed,” and that it makes “many misrepresentations about the company, its management team, as well as misrepresentations about its products, business practices and how it interacts with its partners.” NQ said it will take legal action to defend itself, but also published a complete table of its deposits into various bank accounts.
The claims are scary at best, and shares of NQ Mobile on the NYSE have been halted following the report. NQ Mobile’s full response, including its bank deposits, are included below.
NQ Mobile™ Responds to the Allegations Raised by a Research Report Dated October 24, 2013
|BEIJING and DALLAS, Oct. 25, 2013 /PRNewswire/ — NQ Mobile (NYSE: NQ), a leading global provider of mobile Internet services, today responded to the allegations raised in a research report by Muddy Waters dated October 24, 2013. The company believes that the allegations and accusations set forth in the Muddy Waters report (the “Report”) are false and inaccurate and contain numerous errors of facts, misleading speculations and malicious interpretations of events. Further, the allegations fail to take into account various factors necessary to understand the matters addressed. Finally, the Report makes many misrepresentations about the company, its management team, as well as misrepresentations about its products, business practices and how it interacts with its partners. The company intends to take all appropriate legal actions to defend itself against these charges and to protect the interest of shareholders.(Logo: http://photos.
Before we address the allegations in the Report in more detail at a later time, as confirmation of the strong foundations of our business, the following table shows our major term deposits in cash as of today.
Table of Major Term Deposits:
Finally, as a reminder, the Company will utilize its existing $35 million stock buyback after the blackout period following our Q3/2013 earnings release.
NQ Mobile remains focused on its strong business vision and strategy to become a leading mobile global Internet platform. We will continue to deliver great products to our customers and great services to our partners around the world. We welcome investors, analysts and partners to review our business, our products, and our strategy.
|NQ Mobile Announces Formation of Independent Special Committee|
BEIJING and DALLAS, Oct. 25, 2013 /PRNewswire/ — NQ Mobile (NYSE: NQ), a leading global provider of mobile Internet services, announced that the Company’s board of directors today formed an independent special committee to conduct an independent review of the allegations raised in a report issued by Muddy Waters dated October 24, 2013. The special committee is comprised of four independent directors of the Company, Ms. Ying Han and Messrs. William Tiewei Li,Xiuming Tao and Jun Zhang, with Ms. Han being the chairwoman of the committee. The committee is authorized to retain independent advisors in connection with its investigation.
As previously stated, NQ Mobile believes that the Muddy Waters report contains numerous errors of fact, misleading speculations and malicious interpretations of events. Nevertheless, in order to provide the highest level of transparency to its shareholders, the board of directors of the Company has formed the independent special committee to review the allegations, and management will fully cooperate with the committee in the investigation.
Safe Harbor Statement
This news release contains “forward-looking statements” within the meaning of Section 27A of the Securities Act and Section 21E of the Securities Exchange Act of 1934, as amended, and as defined in the U.S. Private Securities Litigation Reform Act of 1995. These forward-looking statements can be identified by terminology such as “will,” “expects,” “anticipates,” “future,” “intends,” “plans,” “believes,” “estimates” and similar statements. All statements other than statements of historical fact in this press release are forward-looking statements and involve certain risks and uncertainties that could cause actual results to differ materially from those in the forward-looking statements. These forward-looking statements are based on management’s current expectations, assumptions, estimates and projections about the Company and the industry in which the Company operates, but involve a number of unknown risks and uncertainties, Further information regarding these and other risks is included in the Company’s filings with the U.S. Securities and Exchange Commission. The Company undertakes no obligation to update forward-looking statements to reflect subsequent occurring events or circumstances, or changes in its expectations, except as may be required by law. Although the Company believes that the expectations expressed in these forward-looking statements are reasonable, it cannot assure you that such expectations will turn out to be correct, and actual results may differ materially from the anticipated results. You are urged to consider these factors carefully in evaluating the forward-looking statements contained herein and are cautioned not to place undue reliance on such forward-looking statements, which are qualified in their entirety by these cautionary statements.