Calling a company a scam is a pretty damning accusation, and not one to be handed out lightly. So when noted stock investigators Muddy Waters called Chinese tech play NQ Mobile (NQ) an “outright fraud,” and assigned them a price target of zero, the investing world took notice. NQ’s stock took a nose dive, and for awhile, it looked as if the accusers were onto something.
But when there’s as much money at stake as there is with NQ, a $364 million company, not everyone is willing to get on board with the idea immediately. Following the accusations, Sprint (S) entered into a major deal with NQ, causing shares to climb once again, which they continued doing throughout the year.
But what of the allegations made by Muddy Waters? That the tech company had fabricated nearly the entirety of its user base, and had grossly overstated revenues? There was no way of knowing one way or another.
But on May 15, Muddy Waters looked right indeed after some key information surfaced. Well, information in the form of no information. NQ was set to provide the SEC with their full fiscal year 2013 financial information. That is, the hardcore data on revenues, earnings, and all those things that legitimate companies diligently record and report.
Instead, NQ provided nothing. Their reasoning? According to the press release explaining why they didn’t do their homework, they needed “additional time to complete it.”
A company doesn’t usually delay the reporting of their economic data because they expect it to be so good. As a result, investors fled the stock in droves, sending shares plummeting.
It doesn’t look good for NQ, who, lacking a decnet explanation, appear to be buying more time to cook the books. If they aren’t a fraud, they’re going to have to come up with a pretty compelling reason why. And they can’t just say their dog ate their Form 20-F.
By 2 PM EST shares of NQ had plummeted 25.51 percent to hit $7.62 a share, a 10-month low for the company.
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