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Slater & Gordon in new probe - was it cooking the books pre Quindell? I reckon it was.

By Tom Winnifrith | Wednesday 21 December 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.

Oh dear, it just gets worse and worse for Aussie law firm Slater & Gordon (SGH), the near bankrupt owner of the fraudulent Quenron (QPP) businesses. It has now fessed up that the Australian Securities and Investments Commission (ASIC) has served it with two notices to produce documents relating to an “investigation into the accuracy of financial records and accounts of the company for the period between 1 December 2014 and 29 September 2015”.

Slater admits that the ASIC enquiry “seeks to determine whether those financial records and accounts were deliberately falsified or manipulated and whether the company or any of its officers have committed offences.”

S&G stresses that there is no presumption of guilt and that it is complying with the notices and will co-operate fully by handing over documents after Christmas and in full by January. Well it would say that would it not?

This all goes back to the issue of why S&G paid £649 million to buy the Quenron assets when Quenron was at that point insolvent so an offewr that would have ckleated the bank debt - say £50 million - would have been enough: the banks would have forced Quindell to accept.

That, and the reckless lack of due diligence conducted by S&G as well as its failure to demand waranties relating to frauds that has been well publicised on this website and elsewhere has always been an issue for me, suggesting that the Quenron deal was a "hail Mary pass" by a management team that was already deep in trouble.

The fact that ASIC is now investigating whether S&G cooked its own books pre Quenron to ramp the shares is thus no great surprise to me. Shares in Slater are now just 25 Aussie cents having touched $8 as the Quenron deal was announced.

The real issue is the debt in which, cash burning, Slater is drowning. Reports two weeks ago suggested that one bank (Macquarie) had sold on its debt at just 45 cents in the dollar. That price tells you that a debt for equity swap is looming and thus near complete wipeout for the shareholders is the best they can hope for in 2017. The market cap is still cA$80 million which head of either a D4E swap or insolvency is at least 90% too high, even without news of a probe into allegations of severe financial crime.

That makes the shares a slam dunk sell.

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