NQ Mobile Inc. (NQ:US), the Chinese mobile-service provider accused by short seller Carson Block of overstating revenue, jumped as much as 21 percent after saying an ongoing investigation has found no evidence of fraud so far.
The stock surged 11 percent, the most in two weeks, to $12.36 yesterday in New York. The rally cuts into the 46 percent selloff since Block said in October that NQ Mobile was “a massive fraud,” allegations that the Beijing-based company denies. The stock was the biggest gainer in the Bloomberg index of the most-traded Chinese stocks in the U.S., which rose 0.2 percent.
NQ Mobile said the six-month probe being led by law firm Shearman & Sterling LLP and auditor Deloitte & Touche Financial Advisory Services Ltd. is almost complete and that it doesn’t anticipate making any changes to previously reported earnings. NQ Mobile is also working with its regular auditor, PricewaterhouseCoopers, on the annual report, known as a 20-F, that it needs to file to U.S. regulators. The company said it’s delaying that filing by 15 days as it awaits the final probe results.
“Their review is essentially ‘it’s ok so far,’” Sachin Shah, a special situations and merger arbitrage strategist at Albert Fried & Co. in New York, said in a phone interview. “It seems the downside is lessened. They indicate right now everything is fine. The sooner the final report comes out, the more market confidence they will have.”
Block, founder of Muddy Waters LLC, said in an e-mail to Bloomberg News that the delaying of the annual report shows PricewaterhouseCoopers is “clearly uncomfortable” and has been unable to complete its audit. “This discomfort is telling, given that the timing of our initial report gave ample time” for PricewaterhouseCoopers to plan the audit, he wrote.
Mike Davies, a London-based spokesman for PricewaterhouseCoopers, and Kim Titus, a spokesman for NQ Mobile, declined to respond to Block’s remarks. Spokesmen Ron Brandsdorfer at Shearman and Anisha Sharma at Deloitte didn’t immediately reply to e-mails seeking for comment.
The “Investigation Team” has probed NQ Mobile’s business activities, financial records, cash, major business partners in China and abroad as well as acquisitions, yesterday’s statement said. The auditor may request more information or additional work from the team, NQ Mobile said. The company “continues to believe that the allegations by Muddy Waters lack merit,” according to the statement.
Block wrote in an Oct. 24 report that investors should sell NQ Mobile because it misrepresented its cash balances and sales. He said in an interview with Bloomberg Television the next day that the company will end up like Sino-Forest Corp., the Toronto-listed Chinese plantation operator that filed for bankruptcy protection in 2012 after Muddy Waters claimed that it exaggerated its revenue.
“It takes a while for an accounting firm to do their job and see what’s really going on at a company,” Tim Ghriskey, chief investment officer at New York-based Solaris Asset Management LLC, which helps manage about $1.5 billion in assets, said in a phone interview. “It’s certainly not over.”
The company said on its website last month that it bought back shares after the stock tumbled following a weaker-than-forecast earnings report April 10. NQ’s fourth-quarter earnings missed (NQ:US) analysts’ estimates, renewing concerns that the company may have manipulated accounting. The decline was driven by one-time expenses, including the cost to refute the accusations raised by short sellers, NQ said on April 15.
The Bloomberg China-US Equity Index advanced for a second day. Online real-estate portal SouFun Holdings Ltd. sank 5.2 percent to $11.77 yesterday, the lowest level since November. China’s new-home price gains eased for a fourth month in April, SouFun said in an e-mailed statement based on a survey of 100 cities, as sales slowed amid tighter credit that prompted developers to cut prices.
Weibo Corp., the Chinese microblogging service owned by Sina Corp., rallied 6.9 percent to $19.56 after earlier slumping as much as 5.6 percent.
The iShares China Large-Cap ETF, the largest Chinese exchange-traded fund in the U.S., decreased 0.4 percent to $34.93. The Hang Seng China Enterprises Index (HSCEI) of mainland stocks traded in Hong Kong slipped 1 percent to 9,779.72, extending its decline in April to 2.9 percent. The Shanghai Composite Index (SHCOMP) advanced 0.3 percent to 2,026.36.
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