NQ Mobile Whipsaws Traders After Dismissing PwC

NQ Mobile Inc. (NQ) surged in New York, erasing an earlier drop, after the Chinese mobile-security service provider said it replaced PricewaterhouseCoopers Zhong Tian LLP with a new auditor to review its 2013 financial statements.

While investors initially worried the change of auditor would fuel short-seller allegations that NQ Mobile has misrepresented financial data, the announcement triggered buying later in the day on speculation the move can clear the path for the filing of an audited 2013 annual report. The stock has lost about four-fifths of its value since Muddy Waters LLC, the research firm founded by Carson Block, said Oct. 24 that the company overstated revenue.

American depositary receipts of NQ Mobile jumped 15 percent to $5.01 yesterday, after plunging as much as 21 percent immediately following the Beijing-based company’s statement. The advance made the stock the best performer on the Bloomberg index of the most-actively traded Chinese stocks in the U.S., which climbed 0.9 percent to 107.9.

“It’s good news that NQ Mobile finally took action to get a new auditor in its efforts to file a 20-F because PwC had delayed its audit work for a long time and the company can’t afford to wait too long,” Jun Zhang, an analyst at Rosenblatt Securities Inc. said by phone from San Fransisco. “NQ can move on to focus on its normal business once the uncertainty of 2013 report filing is removed.”

New Auditor

NQ Mobile said it hired Marcum Bernstein Pinchuk LLP as its new auditor because PricewaterhouseCoopers’s request for information that isn’t in the company’s possession may hamper its obligation to file its 2013 annual report, according to yesterday’s statement. It reiterated that previously disclosed financial results are accurate. The company has twice delayed the filing of full-year audited results to U.S. regulators.

Shares of NQ Mobile plunged 32 percent on July 3 after saying PricewaterhouseCoopers sought to expand its review of the company’s 2013 financial statements. It also said the head of its audit committee was stepping down for “personal reasons.”

PwC’s refusal to issue an audit opinion “results from the fact NQ is a fraud,” Block said in an e-mail yesterday. “By not issuing any opinion, PwC effected a backdoor resignation that attempts to save face for its client, NQ.”

NQ Mobile said in the statement that “there is no disagreement between NQ and PwC on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure.”

Business Performance

The Internet company’s business has been performing well and looks attractive to private investors, Zhang said. The company said in a June statement that it sold a 3.4 percent stake in its unit Beijing NationSky Network Technology Inc. for $18 million and planned to sell an additional 2.3 percent for $12 million in the next two months.

The iShares China Large-Cap ETF, the largest Chinese ETF in the U.S., added 0.7 percent to $38.24, gaining 0.9 percent for the week. The Standard & Poor’s 500 Index jumped 1 percent as Google Inc. advanced after sales beat analysts’ estimates and concerns eased over crises in the Ukraine and Middle East.

The Hang Seng China Enterprises Index in Hong Kong slipped 0.3 percent to 10,441.23, paring its weekly advance to 0.6 percent. The Shanghai Composite Index added 0.2 percent to 2,059.07, gaining 0.6 percent for the week.

To contact the reporter on this story: Belinda Cao in New York at lcao4@bloomberg.net

To contact the editors responsible for this story: Nikolaj Gammeltoft at ngammeltoft@bloomberg.net Marie-France Han

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