Why are suspicious acquisitions a possible concern?
Now some investors unfamiliar with fraudulent companies may be asking why questionable acquisitions are a concern? In the past many fraudulent companies would drastically overpay to acquire other businesses or even empty shell companies. The companies they acquired were in reality controlled or partly owned by the executives themselves or their family members and friends. These type of acquisitions often serve as a method to siphon off cash or to help fraudulently overstate revenue.
In some cases with heavy share based acquisitions, the purpose is to secretly cash in on the stock. On the surface the CEO, co-founder(s), other high level executives, etc. of the fraudulent company would appear to have sold very little to no shares of stock, helping boost investor confidence. However in secret they were issuing shares in fraudulent acquisitions for companies they controlled. These shares were then later sold and part of the proceeds ended back in their pockets, their family's, or to other partners in crime.
In addition to generously granting stock to their executives, non-employee consultants, and even business partners, it seems NQ Mobile had also been generously issuing shares to acquire stakes of other companies, many of which were in recent months.
In just the months of March to September of 2013, NQ Mobile has issued the equivalent of almost 10 million ADSs on top of using around $17 million in cash for acquisitions purposes. Many of these acquisitions involve companies that seem suspicious on the surface given there is little to no information available on them or their business operations.
NQ Mobile themselves rarely talk about many of these acquisitions and equity investments in conference calls. Often they are nothing more than a few lines in a press release and company filings along with only a couple of words to describe their business.
In addition, these acquisitions are also expected to continue in the future as NQ stated in their Q3 of 2013 earnings press release that they "will continue to look for acquisitions opportunities in related business areas in the future". Therefore this is an area investors should keep an eye on and be concerned with on top of the other fraud allegations and red flags against NQ Mobile.