Oberweis Sells NQ Mobile Stake as Valiant Adds Shares

U.S. investors are facing off over what to do with shares of NQ Mobile Inc., the Chinese mobile-security service provider accused by short-seller Carson Block of overstating revenue.

Oberweis Asset Management Inc., once the second-largest investor in NQ Mobile, sold its entire 1.3 million-share stake in the third quarter, according to a filing with regulators last week. Valiant Capital Management LP, a hedge fund founded by Chris Hansen, bought 2 million shares in the same period, representing 3.9 percent of the company’s U.S.-traded stock, according to a filing Nov. 12.

While NQ Mobile said in June that an internal probe didn’t find any evidence of wrongdoing, its American depositary receipts have fallen 68 percent since Muddy Waters LLC, Block’s research firm, accused the company a year ago of being a “massive fraud.” NQ Mobile, which fired its auditor and saw the chairwoman of its audit panel resign in July, filed its 2013 annual report in October after delaying it twice.

“It is pretty clear the Muddy Waters accusations were at least mostly wrong,” Jim Oberweis, who oversees the $201 million China Opportunities Fund from Lisle, Illinois, said in an e-mailed response to questions on Nov. 14. Even so, “sometimes one has to consider the opportunity cost of waiting around to be proven correct,” he wrote, adding that his company earned “a favorable return” on its investment in NQ Mobile.

Oberweis first reported it held NQ shares in 2011, according to its regulatory filings.

Biggest Position

The selloff came less than a year after the asset manager doubled its stake in NQ Mobile to 2 million shares in the fourth quarter of 2013. NQ Mobile was the largest position in five of six funds at Oberweis, the firm said in November last year.

After NQ Mobile issued the results of its internal investigation into issues alleged by Muddy Waters in June, Oberweis said that was a “great” first step, adding it will take a long time to defeat those allegations.

“Hopefully it’s an indication that this has primarily been a manipulated campaign to smear mud at NQ,” he said in a phone interview then.

NQ Mobile rose 2.1 percent to $7.42 in New York on Nov. 14. It rallied 3.3 percent for the week. The Bloomberg China-US Equity Index climbed 1.6 percent, extending its weekly advance to 2.8 percent. The Shanghai Composite Index slipped 0.2 percent today.

Valian Capital’s Hansen didn’t reply to an e-mail seeking comment on his investment in NQ Mobile after regular business hours.

Apple, Facebook

The San Francisco-based fund’s holdings also included Qihoo 360 Technology Ltd., Apple Inc. and Facebook Inc., according to the filing.

Earlier this year, Hansen was leading a group of investors, including Steve Ballmer, former chief executive officer of Microsoft Corp., to return a National Basketball Association team to Seattle.

“Hedge funds have so many different strategies,” Vijay Marolia, chief investment officer at Regal Point Capital Management, said in e-mailed comments Nov. 14. “When a long-term investor leaves and hot money enters, I think the long-term investor leaving speaks louder.”

Marolia said he maintains a short position in NQ Mobile.

ChinaRock Capital Management Ltd. was the largest investor, holding 9.2 million shares, or an 18 percent stake, according to a filing in August. An e-mail to ChinaRock’s San Francisco office wasn’t returned last week.

Block declined to comment on Nov. 14 when asked about Oberweis’s sale of its holding. Kim Titus, a spokesman for NQ Mobile, didn’t reply to an e-mail seeking comment.

Before it's here, it's on the Bloomberg Terminal.