Muddy Waters Offers to Pay to Double Check Board Review of Chinese Firm

At first, Carson C. Block accused NQ Mobile, a Chinese mobile security firm, of perpetrating a “massive fraud.” Now he’s offering to backstop an inquiry into the company.

Mr. Block’s research firm, Muddy Waters, announced an unusual proposal on Thursday: It is offering to pay an auditing firm to review the results of an investigation being conducted by NQ Mobile’s independent board committee.

“It is necessary and reasonable for the independent committee to have a qualified party evaluate the credibility of the investigation,” Mr. Block wrote in a letter to NQ Mobile directors.

It’s an unusual gambit by Mr. Block and Muddy Waters, which have established themselves as scourges of Chinese companies by publishing harsh reports purporting to uncover fraud. The firm has already claimed several scalps, notably Sino-Forest, a Chinese forestry company that subsequently filed for bankruptcy.

Muddy Waters has accused NQ Mobile of falsifying its books, arguing that a vast majority of the company’s 2012 China security revenue was “fictitious.”

The Chinese concern has denied the allegations, though its stock has tumbled more than 50 percent since the research firm’s report was published in late October.

Now Muddy Waters has offered to pay for the work of Plante & Moran, an accounting firm. The firm would double-check the work of NQ Mobile’s special committee, Deloitte and the law firm Shearman & Sterling.

Behind the proposition, according to Muddy Waters, is the troubled history of independent board committees at Chinese companies, which have often backed up management. The research firm pointed to Sino-Forest’s committee, which proclaimed that the forestry company was in the clear.

Seven other Chinese companies have also retained independent advisers to look into allegations of fraud, coming back with clean bills of health. Their stocks, however, have plummeted all the same.

“Should the independent committee accept our offer, investors will greatly benefit by having reasonable transparency into a process that is critical to protecting their interests,” Mr. Block wrote. “The committee’s findings will be given significant credence when evaluated favorably by Plante & Moran.”

Muddy Waters’ offer expires at midnight on Jan. 7.