By Ben Turney | Thursday 16 July 2015
Disclosure: I own shares in one or more of the stocks mentioned. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from ShareProphets). I have no business relationship with any company whose stock is mentioned in this article.
We’ve just heard that New World Oil & Gas (NEW) returns to trading tomorrow. Denzil Jenkins, the Head of UK Compliance and Regulatory Policy for the London Stock Exchange, is now going to have to prove that his job isn’t just a pointless paper pushing exercise. Having failed utterly to enforce its three rulebooks (“Rules of the London Stock Exchange”, “AIM Rules for Nominated Advisers” and “AIM Rules for Companies”), the embarrassment the New World forward selling fiasco has caused to the London Stock Exchange is acute. There are now serious questions about the integrity of the exchange and the viability of the AIM model of self-regulation. Private investors have lost millions of pounds to the regulated City perpetrators of this mess. And so far nothing has been done.
Watch out for a fake “squeeze”
Thanks to the absence of enforcement, I fully expect wild swings in New World’s share price over the coming weeks. The likelihood is the naked short position has been covered. Even so, it won’t be at all surprising to see an attempt at a fake squeeze.
There is nothing City firms love more than to steal the pensions of retail investors and if there is a run up in New World’s share price the danger is this could be a trap. One thing to remember is that there are now a lot of people and firms (the forward sellers and naked shorters), who will be holding New World stock, which they want to see the back of as quickly as possible.
The coordinated ramping of New World already began across social media more than a week ago, but this is just another corrupt aspect of AIM the authorities blithely ignore. Theft is apparently OK in Britain, so long as it is done by men and women in suits.
As for New World’s shareholders, what hope is there now?
Realistically the only hope of holders of settled stock is to see the current board of directors booted out. All of them.
I have heard that there are plans to keep two of the non-executives on board, but this is just plain unacceptable. Before this board approved the release of at least £750,000 of CREST credits into the system on April 28th, knowing full well that it had no authority to do such a thing, its prior behaviour was as appalling as it was glutinous.
New World has consistently lied to its shareholders, failed to disclose key information and, perhaps worst of all, made little to no obvious effort in meeting operational goals. This has been one of the worst examples of a lifestyle company on AIM and it is shameful it was allowed to go on as long as it did.
Beaumont Cornish, New World’s nomad, bears a great deal of responsibility for this. The manifest failings of this so-called regulatory overseer make a mockery of AIM. So long as Beaumont Cornish keeps its licence to act as a nomad, there is no hope for protection on this market. Those that are stupid enough to follow the rules might as well give up and fall into line behind the other rogues.
Last, but most definitely not least, we should consider Cornhill Capital’s role.
I have to admit, I’ve a certain admiration for how hard Cornhill fought and what it managed to achieve. Andrew Frangos publicly steamrollered New World “CEO” Peter Sztyk at the EGM on 19 May, so I can only imagine the power dynamic behind the scenes. The 0.09p price of the placement and open offer is extremely telling. However, if left unmuzzled, this firm of ravenous brokers will tear through AIM’s increasingly rotten carcass, emboldened by its latest victory.
The Financial Crisis warned us of the moral hazard of bailing out financial firms. Convincing them that no matter what they do there will be no consequences, this simply encourages even worse predatory behaviour. The illegal forward selling of placements has cost private investors on AIM tens of millions of pounds over the years. Had the authorities not ignored this and left it unchecked for so long, the forward selling of New World’s unconfirmed placement would not have been possible.
Try as it might to ignore this fact, the London Stock Exchange now has a responsibility to set its house in order.
Punitive fines and bans would be a good start.
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