China’s NQ Mobile Inc. A Threat

The investment research firm Muddy Waters LLC released a report on their investigation of the Chinese mobile security company NQ Mobile Inc., an NYSE traded company (NQ), charging they are a “massive fraud.”

The report alleges 72% of their 2012 revenues is fictitious. That NQ’s market share is 1.5%, not the 55% they claim. Muddy Waters estimates NQ has under 250,000 paying customers instead of the 6,000,000 reported by NQ.

Most disconcerting was Muddy Water’s report that the product itself is spyware:

NQ’s Antivirus 7.0 is unsafe for sale to consumers, and we consider it to be spyware that makes users’ phones vulnerable to cyber attack. NQ makes a weak attempt to protect users’ private data as it’s uploaded through the Chinese government’s firewall to NQ’s server. Phones are vulnerable to MITM attacks because NQ fails to adhere to basic security protocols. MW engaged top-flight security software engineers to analyze this product.

 The report was released on Thursday causing shares of NQ to drop 50% on after it’s release, and another 20% on Friday. NQ responded by publishing on Friday a list of 14 bank accounts in mainland China and Hong Kong that showed deposits totalling the equivalent of about $295 million. Muddy Waters remains unconvinced by NQ’s disclosures.

In either case, NQ should submit their product and code for testing to an independent technology company.

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