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ShareProphets Exclusive: Milestone and how City of London Markets failed to pay up

By Nigel Somerville, the Deputy Sheriff of AIM | Thursday 10 November 2016

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.

Following on from my earlier piece about yesterday’s disgraceful episode at AIM-listed Milestone Group (MSG) in which the company ‘fessed up that £1.25 million of cash from a placing announced way back on 20 October, the shares for which were admitted to trading on 31 October, had not turned up, ShareProphets has learned the name of the firm at the centre of yesterday’s controversy.

Yesterday the company announced that:

The balance of the funds receivable is outstanding from an FCA regulated entity….that had been sourced directly by the Company

ShareProphets has since learned that this FCA regulated entity is called City of London Markets, and that the transaction in question was being conducted by a “half comm” employee – someone who is unsalaried buts gets half the commission. I think we are talking about the scrapings at the bottom of the bucket shop community.

What we are being told is that the placing was conducted without the cash ever actually being collected. That might seems a bit questionable in the context of the 20 October RNS which announced that the company had agreed to issue the new shares, subject to admission to AIM, raising £1.135 million before expenses….Application will be made….[for the] shares to be admitted to trading on AIM, which is expected to occur on or around 31 October 2016.

It is even more questionable in the context of yesterday’s RNS which told us that not only had the shares been admitted to trading on 31 October as previously announced, but that they had been admitted still without the funds having been paid.

Yet still the company did not inform the market that it was £1.25 million worse off than the market was being led to believe.

Apparently the shares in question found their way into an escrow account and have not been sold. Let us be thankful for small mercies.

Given that the company’s broker, Hybridian, has now terminated its relationship with the Company’s sourced Counterparty – ie City of London Markets – I think it is safe to assume that the outstanding placing proceeds won’t be arriving any time soon from the original source.

So one individual at FCA-regulated City of London Markets told everyone that the cash was in the bag and allowed everyone to think that it was on the way. Except it was not. That, surely, should see that person in the cells next to Milestone CEO Deborah White, also enjoying the company of the FCA in a bare-brick room with a bare light bulb.

ShareProphets understands that the individual in question has been fired by City of London. Too damned right. But questions have to be raised in relation to its own systems and controls in allowing this fiasco to occur at all. Perhaps the head honchos there will occupy a third FCA interview room.

And perhaps the company Broker, which has now terminated its relationship with City, might care to explain its role. How did it sign off on the placing announcement knowing the cash was not there? As an FCA regulated entity should not Hybridian (the broker) have squealed on 31 October when the cash did not arrive?

That the company sat on the non-arrival of the cash without telling the market for a day short of three weeks from the issue of the original placing RNS is bad enough, but for it to take nine days even after admission of the shares to come clean is quite simply appalling.

The company clearly has a cash-crisis on its hands, as demonstrated in my previous piece – and, indeed by the statement in yesterday’s RNS that:

 The Company currently has limited working capital resources and is carefully managing its existing cash balance.

Thus the company now has a stash of unpaid-for shares which should have been worth £1.25 million at the announced issue price of 1.5p per share. With the shares having crashed to the current just 0.6p (bid, last seen) it is hard to imagine the company getting anything like £1.25 million through the door now. Indeed, one might imagine that it could be nearer to £400,000 if a bit of a discount was applied. In other words, with a balance sheet with perhaps around £840,000 of negative net working capital, it still wouldn’t be enough.

But stranger things have happened – and we are hearing that a buyer for the stock in question has been found at the full price.

If that turns out to be true we can simply marvel at how superbly well everyone has managed to pull together. Heck, issuing shares at a monster premium on the Casino could become the norm.

It would, of course, have nothing to do with thoughts of how easily one can drop the soap.

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