WorldSpreads in administration after accounting irregularities come to light.
Spread-betting can be risky if you're not careful, but one risk we don't usually expect is that we'll wake up to find our broker has gone bust due to an alleged accounting fraud.
Sadly, something like that has just happened to customers of WorldSpreads (LSE: WSPR), the Dublin-based spread-betting company listed on AIM, as it told us that "accounting irregularities" have forced it into administration.
In announcing the move, WorldSpreads said that it has discovered a shortfall in client funds of around £13m. There is apparently only £16.6m in cash on its books to cover liabilities to clients of around £29.7m. Some people close to the business have reported that WorldSpreads had failed to keep its clients' money segregated as required, and had combined some of it with the company's own funds.
WorldSpreads had already suspended trading in its shares last Friday, after warning last month that it would report a loss for the year ending 31 March. Chief financial officer Niall O'Kelly resigned after the profit warning, with chief executive Conor Foley, who co-founded the firm in 2000, following him last week.
According to the FSA, after the cash shortfall was discovered, "it quickly became apparent that the company was unable to continue in business and the directors and their advisers concluded that the best course of action, in order to mitigate losses for clients, would be to place the company into special administration".
A relatively small handful of larger spread-betting companies work with a larger number of 'white-label' partners, and even if you don't deal with WorldSpreads directly, you could still be affected. There is a list at comparingspreadbetting.co.uk you can check if you are worried -- although customers of some operators who are not on that list have reported problems, too.
KPMG has been appointed as special administrator, and while the priority now will be to recover as much cash as possible, the shortfall will inevitably mean that clients are going to lose some of their money.
But what of the general risk of using spread-betting that I alluded to in the opening sentence?
Well, if you have, say, £1,000 to invest and you keep your exposure within that £1,000 limit, you're not really risking any more than you would by buying the shares (or other underlying securities) directly. But where many people fail is in not sticking to that limit. As you only have to stump up a fraction of the £1,000, gamblers will often take positions well in excess of the cash they have, leaving them open to the possibility of losing more money than they can actually afford to invest.
And we'd like to know of any experiences you have had with spread-betting.
Have you ever overstretched yourself and come a cropper? Or has it been good for you and you've geared up some impressive gains? Or, and we really hope it's not too many, are you facing a loss through being a client of WorldSpreads or one of its partners?
Please do share your stories with us, below.
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