NQ Mobile Inc. (NQ), the Chinese mobile-service provider accused by short seller Carson Block of overstating revenue, dropped as much as 30 percent after delaying the filing of its annual report for the second time.
American depositary receipts of NQ Mobile fell to $7.62 at 1:02 p.m. in New York, their lowest level in 10 months. The shares have tumbled 68 percent since Block, founder of Muddy Waters LLC, said in October the Beijing-based company was “a massive fraud.” NQ Mobile has denied the allegation and said today that it is working to file its audited full-year results to U.S. regulators as soon as possible.
“No data is negative data,” Sachin Shah, a special situations and merger arbitrage strategist at Albert Fried & Co. in New York, said in a phone interview. “I am surprised by their comments that they need more time. It further undermines their credibility.”
The company on April 30 delayed the filing of its audited annual report, known as a 20-F, by 15 days as it waits for the final results of an investigation into Block’s allegations. The company said at the time it doesn’t anticipate any changes to its previously reported financial results and didn’t provide an update on the investigation in today’s statement.
“The company is unable to file on time its annual report on Form 20-F because it needs additional time to complete it,” Beijing-based NQ Mobile said in its statement today. “The company continues to work to file its annual report for the year ended December 31, 2013 as soon as possible.”
Investors have been waiting for the result from the investigation led by law firm Shearman & Sterling LLP and auditor Deloitte & Touche Financial Advisory Services Ltd. as a ruling on whether Block’s assertion that NQ Mobile misrepresented its financials has merit.
Block, who has become known over the past years for exposing illicit practices in Chinese companies, didn’t respond to a request for comment on the filing delay. PricewaterhouseCoopers Zhong Tian is the regular auditor for NQ Mobile. Christopher Atkins, a spokesman for PwC in New York, didn’t return a phone call seeking comment.
NQ Mobile is still working with auditors on a review of its financial statements, which “has thus far found no incident of fraud” and is “nearing its conclusion,” Kim Titus, a spokesman for the company, wrote today in an e-mailed statement.
Canaccord Genuity Corp., one of three research firms which this year have recommended that investors buy NQ Mobile shares, said today that it is suspending its rating and price target on the stock.
“Given NQ’s failure to file its annual report on Form 20-F, we no longer have a reasonable basis for formulating our estimates and therefore suspend our estimates,” Michael Walkley, an analyst at the firm wrote in a note today.
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