The Deal: Muddy Waters Calls NQ Mobile 'Massive Fraud'

NEW YORK (TheDeal) -- Shares of China-based mobile Internet service provider NQ Mobile Inc. (NQ) fell 47% after short seller Carson Block's Muddy Waters Research initiated coverage of the stock with a "strong sell" rating and called the company "a massive fraud."

"NQ is a massive fraud," Muddy Waters said in its report. "We believe it is a 'Zero'. At least 72% of NQ's purported 2012 China security revenue is fictitious. NQ's largest customer by far is really NQ."

NQ Mobile's value was almost halved after the report came out with its U.S.-listed ADRs falling to $12.09 Thursday before trading was halted.

NQ Mobile, based in Beijing and Dallas, denied the research firm's allegations. After making a general denial, the company followed up on Friday by publishing a list of its bank account balances, as a way of showing that it had a strong business foundation.

Muddy Waters' accusations come more than a week after NQ Mobile completed a $172.5 million private placement of convertible debt. The 4% senior notes the company issued were convertible into American depositary shares at $25.61 each.

The conversion price was set at a 30% premium to the price where NQ's ADS traded on Oct. 8, when the offering was announced. Now, after the plunge in NQ shares, the conversion price is a 112% premium.

The offering, which included a $22.5 million exercise of a greenshoe, was arranged by Morgan Stanley (MS) and Deutsche Bank (DB). The notes were sold to qualified institutional buyers under Rule 144A of the Securities Act.

If you liked this article you might like

The Bears Continue to Be Frustrated

NQ Mobile Stock Soaring on Deal to Divest FL Business, Sell Showself Unit

Market Recon: Understand How Interest Rates Affect You, and You Will Survive

Futures Traders Await Confirmation of Breakout Formations in the Move Higher

Analysts' Actions -- Chipotle, Disney, Brinker, JPMorgan and More