By Gary Newman | Tuesday 21 July 2015
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. 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.
The New World Oil and Gas (NEW) saga is something that I’ve avoided making too much comment on, but now find myself in possession of information pertinent to it. Below I provide a copy of a letter that has been sent to me, which was sent from Cornhill Capital to its clients about the losses they suffered as a result of forward selling New World's unconfirmed placement.
The only time I have written about the company was in early May when I opined that you’d be mad not to cash in – at the time of publication the share price was in excess of 0.6p – and that the share price would eventually crash, not to mention the fact that in my view at the time - and still today - that trading shouldn’t have been allowed to continue in such a disorderly market.
It has all played out pretty much as I expected it to really, apart from one aspect, and that has been the level of animosity towards those who ‘flipped’ and forward sold the placing.
Now I’m certainly no fan of the rules that allow this practice – as I’ve written about here before on several occasions – but I think some on the bulletin boards and the like have been more than a little unfair by vilifying those placees who forward sold the placing shares. In some cases they solely blamed them for the resulting situation with lots of unsettled positions and not enough shares on the market to cover them until the open offer was implemented, following the shares’ suspension from trading.
Up until now it has been debatable just how much the placees were aware of the situation and the fact that due to the number of shares being issued in the placing, approval would be needed by way of an EGM.
Now you could argue that most people who have a reasonable understanding of the market are aware that many companies have clauses within their articles of association that prevent dilution of more than a certain amount within a year.
But having been sent a copy of this letter from the broker that was behind both the placing and open offer, Cornhill Capital, (see below) by someone who wishes to remain anonymous, I think it is safe to say that all the clauses the original placing was subject to weren’t made totally clear to potential placees at the time they took up the original offer.
I have unsuccessfully tried to get hold of Andrew Frangos, but I have no reason to doubt the authenticity of this letter and I know it was passed on in good faith.
I think it goes some way to showing that many Cornhill clients who took part in the placing will have forward sold it without being fully aware of the situation, and you have to question why the broker, and the market makers, allowed that sort of volume of shares to effectively be shorted naked, and the part that they played in creating the disorderly market in the first place.
I think this letter is about as close as anyone is going to get to any parties involved admitting any sort of responsibility – phrases such as ‘disadvantaged as a result of the turn of events’ certainly aren’t an acceptance of blame, but it would appear that Cornhill is at least going to try and ensure that its clients don’t lose out.
Don’t get me wrong though, whilst I think what Cornhill is doing is a fair way to resolve the situation, they certainly won’t be getting my vote for ‘Broker of the Year 2015’!
I think what we can learn from all this though, is that we should be directing our anger and distaste for ‘flipping’ towards the system itself that allows these practices, not getting side-tracked by targeting any individuals that are playing said system, as if we do, nothing will ever change.
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