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What: Shares of online game maker Perfect World (Nasdaq: PWRD) jumped 16% today after the company responded to allegations of fraud.

So what: On Monday shares took a dive after a blog on Tianya, a Chinese social-networking site, alleged an investigation was ongoing at the company. Today the company responded with a “firmly and forcefully” written nine-point press release. Maybe the most notable thing is that an independent audit committee of the company’s board has been reviewing the allegations and independent legal counsel will assist in the review.

Now what: This kind of response is exactly what you want from management when accusations are brought up, although I’m not sure the words “firmly and forcefully” will help convince anyone. Investors are still worried any time fraud is brought up in relation to Chinese small-cap companies because too often it has proved to be true. Since I don’t know which side to believe, I’ll enjoy my seat on the sidelines and let the bears and bulls battle it out in the market. If past experience is any indication, it could be a long, drawn-out battle.

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