Carson Block: NQ Is Just Playing a Shell Game

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Nov. 1 (Bloomberg) -- Muddy Waters Founder Carson Block discusses his outlook for NQ Mobile on Bloomberg Television's "Market Makers." (Source: Bloomberg)

Bloomberg news reporting.

You say this alleged customer doesn't really exist.

That the locations aren't real here it.

Our reporters interviewed the ceo of this company.

Is it a lot of hocus-pocus still?

This is them playing the shell game and a very poorly trying to recover from the lies that they have previously told.

That ceo -- we caught the company just last week and some massive lies about her involvement with nq.

She has been far more involved than the company had ever been willing to admit.

That largest customer is a shell.

It is controlled by nq.

It is an undisclosed, related party and it does not exist.

How come the market seems to be rebounding?

It has made quite a comeback.

Why do you think that is?

We have seen this every time.

We go out, we call ctmwe a massive fraud -- this is a redux.

The company and its proxies are able to pump it back up and then they're gone.

From everything we can -- this is so familiar to us.

We really have seen this movie before.

We have no doubt that in a year from now, this company will have been delisted and the people on the u.s. side who are standing up right now -- i am talking about the u.s. management -- we think a year from now that will have lawyers and they will be saying, how could we have known?

We really weren't involved.

This process takes a while.

We are happy so far.

Since you came out with a report, bloomberg news contacted an accountant outside of beijing as well who said it seems their numbers are kosher.

Sorry?

When you said they had accounting deceptiveness -- where exactly?

Over 90% of the revenue does not exist.

We can start with the revenue line being massively inflated.

The company has made a number of acquisitions.

It usually pays with them and stocks -- in stocks.

Some of these companies are empty boxes and they're paying tens of millions of dollars of shares for them.

That is more money in the fraudster's pocket.

I think there is confusion between when we are saying something is a business fraud versus an accounting fraud.

An accounting fraud you are gilding the lily, you are inflating revenue some.

When you are a business fraud, like this one, the vast majority of what you claim exists, in fact it does not exist.

What's -- you are saying that 90% is fake?

That is our estimate.

It is hard to tell with precision.

We know that the number one source of revenue does not exist.

We published a piece this tuesday called nq's top 10 lies since friday.

Of the top 10 list, break that down for me.

We saw your report at the end of last week.

What sticks out the most?

What is the most damning?

I would like to highlight two.

We caught them red-handed about the involvement of that ceo.

They did not explain why they had lied.

They finally revealed the identities of their second and third largest purported customers.

However, as we show, that was a poorly conceived alive because based on their disclosures, the names that it gave those numbers two and three could not actually be those customers.

It was yet another lie about the revenue.

Number one does not exist.

It numbers two and three do not exist in the way that the company says they do.

I know you were a man who is not welcome in china.

But do you think you should really understand what is going on on the ground over there?

It is a strange claim that we have not been there.

I have a team.

Our team has visited -- as we wrote in the report, we went to 10 possible addresses for the ceo.

The company says we use service offices.

Half of the addresses do not physically exist.

There is no office building at the address that they gave.

That is not normal behavior in china.

So we went to 10 addresses and we have also been to their purported address that they disclosed to investors on the conference call.

The truth is there is not even one sign in the lobby or on the marquee for that company.

The sign that exists is for a company that is called nineh.

That is the business that operates there.

This other one is a figment of the imagination.

No one had heard of the company.

It is not on the door.

During your research, did you or anyone from your team attempt to speak with executives at nq?

Yes we did.

We got answers to some questions.

Some answers don't make sense.

For example, we asked repeatedly for a breakdown of where they sell internationally.

They were always cagey about that.

We asked for a list of the sellers of their prepaid cards.

A now come out and say they have 5000 sellers.

They release a list of the handful.

All the beijing sellers are in the exact same shopping mall.

We asked for these items and they refuse to give them.

That is because -- when they refuse to give them, what was the reason?

We don't disclose that.

That is what they say.

If all of your work is true here, could someone be going to jail over this?

Yeah.

Unfortunately, with all of these frauds that we have seen, the frogs don't get punished.

-- the fraudsters don't get pu nished.

To pull this off, you need collusion from people.

We have seen brides that banks.

Do you think there are crooked bankers involved?

They usually are able to co- opt people at the bank.

People at the bank are making maybe $1500 a month.

You are running a fraud or you can make nine figures, you peel off some money and a consequence-free environment.

Nobody in china ever gets in trouble for defrauding u.s. investors.

The chairman of a massive fraud was elevated -- or was invited to join the communist party's highest citizen committee.

They actually in some cases get rewarded for defrauding u.s. investors.

This is something people have to keep in mind.

Extraordinary.

We will continue to do our digging into this.

Clearly you do your homework as well.

Carson block, the founder and director of research at muddy waters.

When we come back, a surprise from general motors.

Gm sales rose last month almost twice as much as expected.

We will see what that is doing to their stocks.

Bloomberg is headed on the

This text has been automatically generated. It may not be 100% accurate.

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