By Tom Winnifrith, The Sheriff of AIM | Tuesday 27 June 2017
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.
Slater & Gordon (SGH) spunked £649 million on buying the worthless, fraudulent assets of Quindell (QPP) in 2015, a deal that has seen its shareholders suffer a 99% wipeout. It has now filed a UK High Court claim against Watchstone (WTG), Quenron as was for £637 million and we have obtained the papers and, in a major scoop, publish the Claim in full below.
In a very detailed way it shows how Quindell executives, notably former CEO Rob Fielding, deliberately misled S&G over "dilution", that is to say the percentage of claims taken up by Quindell Legal Services which failed. Fielding was tracking these in a special project , codenamed Project Midas, from the summer of 2014 and was also aware of up to date levels right up to the point of completion of the deal. He knew the figures supplied to S&G were just plain wrong.
The dilution data presented to S&G in presentations by Fielding and projections made by Fielding in January and February 2015 were of materially different levels to those actually achieved despite Fielding stating that he expert historic levels to improve to "Ferrari" levels . In emails S&G is relying on in Court, the Quindell CEO repeatedly sought to justify a fuller valuation for QLS based on the levels he was forecasting which he knew were wrong.
It gets worse not just for Fielding but for the entire Quindell board but especially former chairman David Currie. He was the man who ten years before the Quindell implosion had signed off - as a City adviser - on the deal which allowed king fraudster Rob Terry to short shares in The Innovation Group where he was CEO shortly before its stock collapsed from 1200p to 5p as all of Terry's deals were shown to be fraudulent.
In March 2014 Currie set up his own advisory firm Codex and, as its first deal, it advised Quindell on the S&G sale netting £2.8 million in fees. Currie was also chairman of Quindell. And Codex is heavily implicated in this claim. S&G repeatedly demanded to see the PWC report into Quindell's numerous issues. In the end it was provided with just 1 of 3 sections in draft form. The Quindell board had full sight of the final PWC report in early April, six weeks before before the S&G deal completed and had draft versions by February and March. So it was made aware by PWC that the projections and indeed historic numbers on dilution were "somewhat aggressive" and "at least 5% too low". The entire Quindell board and Codex are implicated in not divulging this data to S&G since it is material.
Codex told S&G that the missing sections "might be a giant red herring" and "there was nothing in it". That was clearly a lie given the PWC comments on dilution. The fact is that S&G bought QLS on the basis of data on dilution which Quindell knew was wrong and that is the basis of its claim that on the basis of "Fraudulent Misrepresentation. S&G was induced to enter into the acquisition"
Note 84 of the claim also assets that board packs sent to Quindell's directors in April and May 2015 demonstrated clearly that the dilution projections being made to S&G for calendar 2015 were bound to be wrong.
If you read the claim in detail the evidence is documented in full and appears compelling. Fielding - whose career highlight at Quenron was taking a £2 million bung from arranging for Quindell to buy for £30 million a totally worthless company set up by a convicted Nigerian fraudster, as we revealed here, is shown again and again to have actively misled S&G in his role as Quindell CEO. Codex, and thus Currie, come out of this claim looking almost as bad.
We also discover in this claim that Quindell tried to secure finance from Nomura as an alternative to the S&G deal but the banks baulked over the very issue of dilution. This was also not disclosed to S&G.
I had until now thought that the S&G case was a weak one on that as ShareProphets readers - yes we can track IP - they knew that there was wholesale fraud but what I failed to appreciate was that S&G, though idiots, appear to have been deliberately misled with false data. Watchstone will no doubt have a response but this claim appears to be very well documented to me. It is compelling. And that changes things.
I would suggest that there is a better than evens chance that S&G will win in the High Court which will see Watchstone (which has funds of just £68.5 million and falling) wiped out and bankrupted. The alternative is a long legal battle which will see Watchstone's £68.5 million spunked on PLC costs, supporting its remaining cash guzzling businesses and, above all, legal fees. Its final distribution is thus - in a best case scenario years away since it cannot distribute since this case settles, and perhaps would only be £30 million, probably far less. So if one risk weights the shares accordingly Watchstone's fair value is perhaps (6* 0 + 4 * £30m) /10 = £12 million or 26.5p per share.
The shares are now 140.5p and that makes them a slam dunk sell.
If you disagree fine, but please read the document first. I challenge you to do so and to conclude that Fielding, Currie, Quindell and Codex have behaved in a way that is anything other than deceptive. I am sure that the Serious Fraud Office will be reading it with glee and if Fielding was not bang in the frame already ( he was) he really is now.
I believe that in time, Rob Terry may well be sharing not only a first name with Fielding but also a cell. This report is a damning expose on a man who is a proven charlatan. But also on the wider Quindell board and certain of its advisers all of whom appear to have behave in a way which leaves the facing a lot of hard questions and damning evidence..
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