NQ: Oops

July 6, 2014

NQ’s July 3rd announcement vindicates short sellers, but was likely delayed in order to give China side insiders a chance to illegally dump stock. The announcement also puts lipstick on the state of NQ’s doomed audit. Only hours before the long July 4th holiday weekend began, NQ announced that Ms. Ying Han, who was the chairwoman of its audit committee, had resigned from the board. NQ also announced that PwC Zhongtian (“PWC”), whose audit opinion was already more than two months late, had requested a broader audit scope. While both admissions are hugely vindicating for short sellers of NQ, we strongly suspect that:

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NQ deliberately held back both admissions so that NQ China insiders and their proxies could illegally dump more shares at existing shareholders’ expense, and

NQ is again misrepresenting the true state of its audit and relationship with PwC Zhongtian (“PwC”). NQ’s prior statements and actions make clear that it has understood for some time that PwC will never issue an unqualified audit opinion for 2013. The language about PwC requesting a larger audit scope is a misrepresentation designed to keep the passengers on the sinking NQ ship (so that NQ insiders can keep the lifeboats for themselves).

We believe that by June 25th a) Ms. Han had already informed NQ she was resigning, and b) NQ had accepted that PwC will never issue an unqualified audit opinion. In delaying the day of reckoning by at least a week, NQ likely provided an opportunity for insiders to dump shares.

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