Last week, Chinese mobile company NQ had its chance to defend itself from short selling firm Muddy Waters' accusation that it's an out and out fraud.
The CEO was on Bloomberg TV and the company held a conference call. Management went the whole nine yards.
This morning the stock is up 12%, after plummeting 63% since Muddy Waters' call.
But Muddy Waters and its CEO Carson Block isn't done yet. This morning it released a report called 'NQ’s Top Ten Lies Since Friday' for all the doubters out there.
The report hits on everything from NQ's complex network of shell companies, its relationship with its 2nd and 3rd largest customers (which Muddy Waters alleges basically don't exist), its assets, market share, technology, and of course its financial statements.
A few points would be inside baseball if you haven't been watching the story closely, but there are also a few points/accusations (whichever you prefer) here that anyone could understand.
Like this one:
Lie #3: YDT’s SAIC financials, which show revenue that is a fraction of what would be required for NQ to generate $20.2 million in revenue through YDT, are reported net of payments to NQ.
Our report anticipated the lie that YDT’s financial statements show net revenue, as opposed to gross. NQ was hoping that investors would not read the report clearly enough to read the proof that the sales number is a gross number.
Or this one:
Lie #9: NQ is not responsible for enormously overstating its market share. On the call, NQ fumbled quite a bit when challenged about our survey results that show it has only 1.4% market share. However, it clearly tried to distance itself from the huge overstatements of market share. We do not believe NQ can evade liability for these statements – it is clear to us that NQ deliberately materially misrepresented market share to investors, regardless of whether the estimates came from third parties that NQ engaged.
And this one:
Lie #5: Muddy Waters believes there are no problems with NQ’s SAIC financials.
On pp.32-33 and in Appendix Bof our initial report, we describe in detail the numerous signs of fraud present in NQ’s various SAIC financial statements, including those of recently acquired companies FL Mobile and Nation Sky . Matt Mathison attempted to revise very recent history.
Matt Mathison on conference call: “[Muddy Waters] said that NQ’s SAIC filings match appropriately with US GAAP. So I don’t think there’s anything to address there.”
Matt Mathison should have known that what he said about our discussion of NQ’s financials was not accurate.
Your move, NQ.
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