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.