NEW YORK (TheStreet) -- Shares of China's NQ Mobile (NQ) are plunging after the company reported that its independent auditors, PricewaterhouseCoopers, communicated to the company that it would need to perform additional procedures and expand the scope of its audit work. NQ also stated that the chair of its audit committee is stepping down. Short seller Muddy Waters has alleged that NQ Mobile, which provides mobile Internet services focused on security, privacy and productivity, is a fraud.
BACKGROUND: NQ Mobile has previously announced that four of its independent board members, working with lawyers and accountants, did not find any evidence that the company had engaged in the fraud alleged by Muddy Waters. However, the investigators saw evidence that "some information" might have been "missing" on "many of the devices" from which they sought information, NQ Mobile reported. The investigators recommended that NQ Mobile adopt several measures "to further enhance the company's internal controls." According to Muddy Waters, NQ Mobile's findings were similar to those of Sino Forest, another Chinese company that was accused of fraud by the research firm and ultimately filed for bankruptcy in 2012. Furthermore, NQ Mobile refuses to release the investigators' report, preventing details about the data changes from being known, Muddy Waters stated.
WHAT'S NEW: Earlier this morning, NQ Mobile announced that PwC communicated to the company that it would need to perform additional procedures and expand the scope of its 2013 audit work following the June 4 release of the summary findings of the investigation conducted by the special committee. "The company's board and audit committee are considering PwC's request. The company will provide a further update when available," NQ stated. The company also announced Ying Han, the current chair of the audit committee, has informed the board that she would be stepping down due to personal reasons not related to her role at the company, effective on July 6. "There are no disagreements between Ms. Han in her capacity as chair of the audit committee and the company," NQ stated. Two new independent directors have been appointed to the board and one of those two will serve as chair of the audit committee following Han's departure. Omar Khan, co-CEO of NQ Mobile, commented, "We remain confident in our business, our strategy, and our financials. We believe that the steps we are taking strengthen the collective global experience and expertise of our Board and further enhance our corporate governance."
PRICE ACTION: In morning trading, NQ Mobile shares sank 32% to $4.60.