NQ Mobile and some other China Internet stocks fell Friday, even after the mobile security firm fired back against a short seller's charges of fraud.
Executives at NQ Mobile (NQ) on Friday held an emergency conference call to plead with investors to trust that their company is not the "massive fraud" that a short-selling firm says it is.
But after trading in the stock was halted at the start of the session, NQ stock fell 12%, on top of its 47% drop on Thursday.
It's not the first time Muddy Waters, founded by well-known short seller Carson Block, or other short sellers had claimed fraud against a China company publicly traded on U.S. markets. The latest charge seemed to hurt. Qihoo 360 Technology (QIHU) fell 4.8% on Friday, while Baidu (BIDU) slipped 1.2%, Sina (SINA) 3.9% and Youku Tudou (YOKU) 3%.
But claims by U.S. short sellers against Chinese firms generally won't hurt long term, says Janet Stites, an analyst who publishes the China Business Knowledge newsletter.
Most Chinese tech companies publicly traded in the U.S. are similar to many Silicon Valley companies in that they've attracted U.S. venture-capital funding and board members — generally signaling long-term stability, says Stites.
"Of all the sectors in China, the tech sector is probably the safest, even if hit by short sellers," Stites told IBD. "The (business) models are kind of safe already.
Wedge Partners analyst Jun Zhang, responding to IBD via email, sent a report he released in June when NQ faced claims from a different short-selling firm. He said he still stands by that report, which concluded: "NQ Mobile is legitimate.
At least two major investment firms have recently bought NQ notes. In an Oct. 16 filing with the SEC, NQ announced it had completed a sale of $172.5 million in convertible senior notes following the exercise in full of an option previously granted the initial purchasers, Morgan Stanley (MS) and Deutsche Bank Securities, to purchase up to an additional $22.5 million. Morgan Stanley didn't respond to an email seeking comment.
The SEC on Friday declined to comment.
In its report, Muddy Waters claims NQ Mobile is deceiving investors about its cash and more. On Friday, NQ rebutted those claims and posted copies of its bank statements showing deposits of about $295 million.
NQ also formed a committee of four independent directors to further investigate the charges.
"We welcome investors and analysts and partners to do due diligence on our business, our products and our strategy," NQ executive Matt Mathison said during a two-hour call with analysts.