Why We Are Publishing Today

NQ Mobile is the most-extensively-contested of Muddy Waters' major China-listed-issuer shorts. Unlike the rapid closure of Sino-Forest (2011) or the unambiguous OSC finding that followed, the NQ Mobile case ran across approximately four years of contested public posture between MW and the company before resolving via the company's eventual rename, US delisting, and asset divestiture. The file is a useful counter-example to the assumption that forensic-short outcomes resolve cleanly in months.

Section 1 — The Muddy Waters Thesis (October 24, 2013)

Muddy Waters' report alleged that NQ Mobile:

• Reported approximately 72% of 2012 China security revenue that did not represent arms-length commercial revenue, in MW's reading of customer-by-customer triangulation;
• Used related-party arrangements with affiliated distributors in ways that did not match disclosed counterparties;
• Had cash and receivables disclosures that materially exceeded what MW's primary research suggested the operating business could support.

MW disclosed a short position. NQ Mobile rejected the allegations comprehensively.

Section 2 — Contested Public Posture (2013–2016)

The post-publication sequence at NQ Mobile differed from most peer cases in the duration of contested public posture:

• Late 2013 through 2014. NQ Mobile commissioned an independent committee investigation through outside counsel. The committee's published findings did not adopt the MW characterization.
• 2014. Auditor PwC Zhong Tian completed the 2013 audit with an unqualified opinion. The audit conclusion was, in subsequent years, materially revisited.
• 2015–2016. Sequential auditor turnover; further restatement and disclosure activity. NQ Mobile renamed itself to Link Motion Inc. in 2016, signaling a pivot away from the mobile-security positioning.

Section 3 — NYSE Delisting and Business Sale (2017)

By 2017, the cumulative effect of the disclosure cascade had resulted in:

• NYSE delisting of the ADS;
• Sale of the core security business (Yidatong / NetQin Mobile Security operations) to a Chinese acquirer;
• Substantial dilution and recapitalization of the residual listed entity (Link Motion Inc.).

Section 4 — Where Things Stand (January 2018) and What Muddy Insights Takes From The Case

As of January 2018:

• NQ Mobile / Link Motion is no longer a US-listed entity;
• The core security business has changed hands; the residual entity has limited operational substance;
• The case is, on the US-securities-procedural track, substantively closed.

What Muddy Insights takes from the NQ Mobile case:

1. Contested-posture cases can take years to resolve. The NQ Mobile timeline (October 2013 short → 2017 delisting → continued asset disposition through the late 2010s) is a useful counterpoint to faster cases like Sino-Forest. Short theses that depend on rapid market-pricing-in of regulator action should be hedged for time decay.
2. Auditor changes are a meaningful but lagging signal. PwC Zhong Tian's 2013 unqualified opinion, subsequently revisited, illustrates that an unqualified audit opinion is not, on its own, a stable refutation of a forensic-short thesis. The subsequent auditor turnover sequence was a meaningful lagging indicator that the disclosure question had not been finally resolved.
3. The "rename and pivot" template is common in contested-posture closures. The NQ Mobile → Link Motion rename and pivot away from the disputed security positioning is the cleanest example of a corporate posture-change response that did not formally concede the underlying short thesis but substantively repositioned away from it.

Source Index (selected)

• Muddy Waters Research, "NQ Mobile: A Massive Fraud," October 24, 2013.
• NQ Mobile Inc. — Independent Committee report, 2014.
• NQ Mobile / Link Motion Inc. — Form 20-F and 6-K filings, 2013–2018 (SEC EDGAR).
• NYSE delisting notice, 2017.

— Muddy Insights, January 15, 2018.