NQ broke the cardinal rule of China fraud: Do not get into trouble in China. State-owned CCTV, the most influential television news network in China, exposed some of NQ’s dishonest practices in what is known as the “3-15 incident”. Every March 15th in China is Consumer Day, and CCTV airs investigative reports on companies that are among the more egregious in their business practices. NQ was exposed during the March 15, 2011 program.
CCTV revealed that NQ and its subsidiary, FL Mobile, were paying phone refurbishers in China to install both NQ and FL software. However, the FL software was really a trojan, and about six hours after the user put a new SIM in, the phone would go haywire. The performance would slow down, and users would see their phones uploading and downloading data without being commanded. Non-NQ security apps were suddenly deleted. However, users could obtain salvation by running NQ, which informed them that they would need to become paying subscribers in order to eradicate the virus.
The exposure was a massive problem, and threatened to derail NQ’s fraud dreams. Its IPO was postponed by a few months while it tried to paper over the bad publicity. We spoke with a former NQ employee who joined the Company after the 3-15 incident. She informed us that NQ tells employees that CCTV the following year aired a retraction. We viewed the 2012 program, and there was no retraction of any sort. This appears to be a lie.
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