The last few days have seen director dealings come under the spotlight following significant transactions at Quindell (LSE: QPP). Chairman Robert Terry, finance director Laurence Moorse and non-executive director Stephen Scott have each put up shares in Quindell as collateral in return for a loan from a separate company called Equities First, which specialises in such transactions.
The three directors used a portion of the proceeds from the loans to buy more shares in Quindell, with it being unknown what the remainder of the loans are being used for. To coincide with the transactions, Quindell released a statement saying that the directors felt the shares were undervalued and were confident that the company would meet full-year expectations.
As more details emerged of the nature of the transactions, however, Quindell’s share price has fallen heavily and is now around 40% lower than it was prior to the announcement.
Angle And Cloudbuy
The additional details released by Quindell appear to have prompted Angle (LSE: AGL) and Cloudbuy (LSE: CBUY) to release more information regarding their recent director deals. In Angle’s case, this is with regard to a transaction undertaken by chief executive Andrew Newland on 21 October where he transferred up to 3.5 million shares in the company to Equities First for a loan in connection with moving house. Similarly, the chairman of Cloudbuy, Ronald Duncan, transferred up to 4.5 million shares in the company in return for a loan that is also said to be in connection with a house move.
Clearly, the market is unhappy with how information regarding the various share transactions has been communicated. Shares in Quindell are, as mentioned, heavily in the red, while Angle and Cloudbuy’s share prices have also come under pressure today, as investors appear to have lost a degree of confidence in the future prospects of the companies in question.
Of course, the directors may have genuine reason for requiring additional cash, and may have been unable to sell shares quickly enough without either receiving a detrimental price, or causing weakness in the company’s share price. However, by apparently not providing all of the details at the outset, the companies have ended up with the latter, and also now have the potential for margin calls being required on the loans.
It would be of little surprise for more companies to now release statements that clarify director transactions more clearly, with there being a relatively high chance that other company directors have engaged in similar activities. This would be good news for investors, since director dealings can affect their decision to buy or sell shares in a particular company, and it seems only fair and just that investors are aware of the circumstances behind significant director loans and dealings prior to making their own transactions in the stock.
After all, if transactions such as the ones that have taken place at Quindell, Angle and Cloudbuy are not clarified at the outset in future, then it could provide the market with an unreliable view on the rationale behind director dealings.
Of course, director dealings are not always the most reliable indicator of a company’s future potential and, here at The Motley Fool, we’d rather follow a step-by-step approach to building our wealth. Indeed, we’ve written a free and without obligation guide that is best summarised as 10 Steps To Making A Million In The Market.
The 10 steps are simple, straightforward, and you can put them to use on your own portfolio right away. They could help you retire early, pay off your mortgage, or simply increase your net worth.
Click here to find out all about them – it’s completely FREE and without obligation to do so.
Peter Stephens has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.