By Tom Winnifrith, The Sheriff of AIM | Thursday 13 July 2017
Disclosure: Financial Investigative Media Limited, which is not owned by Tom Winnifrith but by a trust for his dependants, owns shares in companies mentioned in this article. 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 AIM casino has hosted the London stockmarket's biggest fraud for almost 40 years (Quindell) and a raft of smaller frauds in recent years. One might almost say that fraud is endemic. Yet, in a consultation paper published this week, the London Stock Exchange (LSE) has insisted that it is not within the remit of its own AIM Regulation department to tackle fraud or indeed do anything about it. This shows a complete contempt for investors - we bank the fees, you bank the losses.
The LSE and the hapless head of AIM Regulation, a department branded the Oxymorons by the FT, Mr Marcus Stuttard start well insisting:
The integrity and reputation of AIM is important to both market participants and London Stock Exchange as its operator.
Nice words, if only anyone believed it. What follows is depressing. The LSE states that "its responsibility, via the Oxymorons, is to set out rules in relation to the admission and orderly trading of AIM securities in the AIM Rulebooks and to enforce those rules. "The various London Stock Exchange rulebooks are aimed at maintaining the integrity, orderliness, transparency and good reputation of its markets."
"London Stock Exchange’s remit is often perceived to be wider than it is, extending to matters which are subject to legal and often criminal sanctions. However, London Stock Exchange’s remit is limited to its rulebooks i.e. a company’s conduct in relation only to its AIM rules obligations, or in the case of a nominated adviser, the duties it owes to London Stock Exchange in its role as a nominated adviser.
Matters such as directors’ duties, shareholder rights, takeover obligations, short selling, prosecution of market abuse cases and fraud in relation to AIM companies fall within the remit of the appropriate statutory authority such as the Department for Business, Energy and Industrial Strategy, the Panel on Takeover and Mergers the Financial Conduct Authority (FCA) or the Serious Fraud Office
The AIM Rules for Companies are focused on disclosure to ensure investors have the relevant information to make informed investment decisions. They do not duplicate statutory obligations, for example, in areas such as market abuse, short selling, fraud, directors’ duties, takeover code obligations and financial reporting standards."
But hang on! What about when a company tells a lie via an official stock exchange release and raises money into the share price strength that follows as happened with Quindell and also African Potash and Cloudtag, to name just a few high profile cases of late? This is fraud ( raising money on a false prospectus) and so it is right that the SFO investigates. But AIM cannot simply wash its hands of the matter as it appears to be doing here.
Is there nothing in its rule book which says "Companies shall not release information that is not a total fucking lie?" If not there should be and AIM can change the rule book at any time. I am pretty sure that telling lies via RNS statements made through the Exchange is a breach of AIM Rules. Merely to say that this form of fraud is for someone else is not enough. Sure, let the SFO and FCA investigate these matters and hopefully send a few folks to jail but we all know that will take ages.
Meanwhile, AIM surely has a duty to take action where fraud - that is to say companies telling lies to pump up share prices ahead of placings - is demonstrated as it has been with Quindell, Potash, Cloudtag and so many other companies over the past few years. It appears AIM does not see it that way, by washing its hands of the matter it allows investors to throw more good money after bad. In the end all that money will be lost and the integrity of the Casino will be undermined yet again but as AIM refuses to act it as well as an army of crony capitalist advisors can continue to bank their fees.
And so as part of this consultation on the matter of fraud on AIM, the hapless clown Stuttard asks just one question
Are there further ways London Stock Exchange can helpfully educate market participants, particularly individuals, as to what London Stock Exchange can and can’t do in respect of its remit, beyond the information already available on its website?
Put another way, how can we try to ensure that our abject failure to do anything about endemic fraud is blamed on other people. can that bastard - the real Sheriff of AIM - Tom Winnifrith not attend our AGM again and ask awkward questions about all the China frauds and why we ignored ALL of his specific evidence he handed us about fraud at Quindell?
It gets worse....
In the consultation paper AIM then discusses how it deals with rule breaches which, one assumes, include telling outright lies to pump share prices. It says "London Stock Exchange takes seriously all potential breaches of the AIM Rulebooks. We receive information from a variety of sources in respect of alleged breaches of our rules. " Oh that sounds good.
"Where there is sufficient evidence to support a finding of a breach of the AIM Rulebooks, our approach is to seek to achieve regulatory outcomes taking into account, amongst other factors, the seriousness of the breach and to seek to prevent future non-compliance."
Surely there should be something in here about protecting investors by exposing the rule breakers and the rile breaches? Oh sorry, that is the little guy and the London Stock Exchange does not care about little people.
We are told:
Between 2013 and 2016, London Stock Exchange conducted on average 190 reviews per annum in respect of compliance of its AIM Rulebooks. Of these, on average in each year, 81 of these matters either did not fall within the remit of London Stock Exchange, or where they did fall within the remit of London Stock Exchange, they did not evidence a breach of the AIM Rulebooks. The remainder resulted in the following outcomes.
Outcomes of investigations (AIM Rulebooks) Average per year 2013-2016
Recorded Breach and Education 93
Warning Notices and Private Censures/Fines 16
In other words during these years no company was every publicly censured for telling a lie which is a breach of AIM Rules. Most were told that they had to go sit in the corner and write out " we will not lie to our investors" 100 times. A few were taken to the "naughty Step" and given a private ticking off. For the hardened criminal or even just a minor crook that is no deterrent is it?
So, for instance, Sefton Resources (SER) was able to boast of a sharp rise in monthly oil output one day, do a placing into share price strength that afternoon only to be forced to admit six weeks later that its monthly output had fallen not risen. So it lied and spoofed punters and raised money. that was fraud but the "other authorities" did nothing. And AIM also did nothing in public (and probably also nothing in private either) . Had it warned punters that Sefton had lied and punished it publicly the company;s eventual demise could have been hastened and less good money thrown after bad.
An even better example of the failure of private censure is 3DM (later known as Environmental Recycling Technologies, an AIM fraud now in administration. In 2006 it got a private censure for telling wholesale lies to investors from the FCA. It assumed that if this was as bad as it got it could carry on lying and did so for another three years until eventually a public censure followed in 2009.
Private censures deter no-one and liars and criminals on AIM - either companies or advisers that knowingly sign off on statemnents that are unverified or just plain lies - see that it is almost inconceivable that AIM Regulation will do anything more than offer a private censure and even that is very unlikely. So what is to lose? Since AIM will not suspend dealings of shares in companies that lie to investors or name and shame the liars, it is offering an open invitation to crooks to list, steal the cash and then do a runner before the SFO just possibly makes an appearance a decade later.
This consultation document shows that the London Stock Exchange - which has done so much to promote AIM in fraud hotspots such as China as the place to list firms - is washing its hands off the matter of tackling fraud. It simply does not care or perhaps it considers that telling lies to push up share prices ahead of a placing is not fraud?
You can read this lamentable document in full HERE
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