Does Quindell PLC Expose Weaknesses In AIM Regulation?

Back in its original report on Quindell (LSE: QPP), Gotham City Research said “You should assume that Gotham City Research LLC has and/or will submit our findings” to the relevant UK regulatory authorities. Gotham also opined that had Quindell been operating under stricter US regulations, its shares would qualify for de-listing.

It went on to launch the now-famous withering attack on the company and widely criticised its businesses, its accounts, and its long-term viability, while shorting the shares at the same time — and that triggered the slide that has knocked 90% off Quindell’s share price since its April peak of over £6.50, to just 57p today.

Main market? No!

Then on 11 June we heard that Quindell’s request for a move to a main market listing had been turned down by the London Stock Exchange (LSE). Rules relating to a significant change in scale or operations were cited, but to this day we have still not heard the specific reasons.

Wind forward to 18 November, and the The Telegraph and others reported that the LSE was looking into any possible breaking of the AIM market rules over the resignation of Quindell’s joint broker Canaccord Genuity. Rule 11 of the AIM code says that any sensitive information that might move a company’s share price must be immediately released to the market — Canaccord resigned on 21 October, but Quindell did not release the information until 17 November. So far, Quindell says it has not heard from the LSE.

Canaccord went on to drop its Buy recommendation on Quindell last week, saying that events had led to “uncertainty on the future direction of the business” and that “goodwill impairment tests and a working capital review” are needed.

Approach to FCA

On 30 November, This is Money reported that a “large number” of small shareholders have contacted the Financial Conduct Authority (FCA) to ask it to open an investigation.

The reporting of Canaccord’s resignation is one of the big issues, but the most infamous is surely the farce surrounding those claimed directors’ purchases — we now know that when chairman Rob Terry, finance director Laurence Moorse and non-executive Steve Scott announced they were buying more Quindell shares on 5 November, they were in fact massive net sellers of them.

Terry pocketed £5.9m from his sale, and it all came to light after broker Canaccord had resigned but before Quindell released that information to the market. We need to know whether the actions of Terry and his chums were in keeping with stock market rules.

Regulatory failure?

Under AIM rules, a company must have a “nominated adviser”, and for Quindell that’s Cenkos Securities — and I reckon Cenkos has some questions to answer, too. Did they know, for example, that when Quindell’s directors were claiming they were buying they were actually selling? Did they know about Canaccord’s resignation and that Quindell was sitting on the news?

Confidence in AIM’s regulatory bodies has been dealt a blow. And if there is any reputation to be rescued, investors surely deserve some official clarification on these matters.

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Alan Oscroft 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.