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Echo Energy: How insiders made over £3 million in less than a month – shocking non-disclosure

By Cynical Bear | Friday 11 August 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.

My last piece on Echo Energy (ECHO) looked at how connected party Greenberry was making a fortune out of the ramp and also looked at rather odd TR-1s. Well history is repeating itself and, as always expected, yesterday’s TR-1 shows how the other connected “institutional investor” here, Pegasus, has also made a very quick buck - not that it told anyone when it was doing so!

The TR-1 yesterday stated that as at 5 July, Pegasus had moved to a 7.39% holding of 26.7 million shares and had notified Echo on 9 August.

Um, sorry, what?

Just to jog your memory, Pegasus was the investor that subscribed for 98 million shares at just over 10p raising £10 million on 13 June, less its £1 million commission of course. I can’t help but smile at James Parson’s comment in the original announcement relating to the Pegasus investment:

“This investment is a further endorsement of our recently announced strategy, with our new investors seeing as we do the very real opportunities in the current asset market to add material value rapidly to the business”

Hmm, I think the reality is that the investors saw a very real opportunity to take advantage of the massive ramp and overvalued share price to make a very quick buck.

We now know that between 13 June and 5 July, a mere 22 days, Pegasus sold 72 million shares at somewhere between 14p and 18p. The reality is probably worse. One will remember that this investment was agreed on 19 May and then there was a rather odd gap of 15 business days before completion. I don't think it is too cynical to think that Pegasus was actually selling down from 19 May - the share price was over 20p towards the end of May.

Pegasus invested £9 million after commission in June. It appears that it has sold 72 million shares at say an average of 17p (probably higher) making over £12 million. Accordingly, Pegasus is already up by over £3 million and it still has 26 million shares in its pocket worth almost a further £3 million at the current share price. If it really got on it, Pegasus probably could have generated the £9 million in proceeds before 13 June and never had to find any new cash in the first place.

The fact that this has only just come to light is shocking, although not that surprising to me as it may have impacted the share price somewhat if it was that obvious that Pegasus was getting out so quickly.

So why has it come out now?

I’m guessing it is something to do with the other RNS that came out yesterday, namely the appointment of Smith & Williamson as the new Nomad to replace ZAI Corporate Finance. I think the conversation earlier this week may have gone something like this:

Smith & Williamson: “James, we’re really excited about getting on board here but before we do, we just want to check that Echo is all up to date and compliant with AIM regulations”

James Parsons: “Yes, think so”

S&W: “Sounds good, how about TR-1s – have they all been filed?”

JP: “We have issued all of those that we have received from shareholders.”

S&W: “I’m afraid that’s not good enough, James. That may have passed the Zimmerman hurdle but we’ve got a slightly higher bar. Let’s start by looking at your largest shareholder, Pegasus. I note that it had 98 million shares on 13 June, how many does it have now?

JP: “Good question, let’s take a look at the register; Pegasus must be here somewhere. Ah yes, here it is, just after Parsons, it shows them as having 26 million as at 5 July.”

S&W: “26 MILLION……and you hadn’t received a TR-1?”

JP: “No”

S&W: “Did you ask for one?”

JP: “Nothing to do with us, it’s their obligation to provide us with that information.”

S&W: “Look James, I’ve said already, I’m not Zimmerman. Everyone knows Pegasus is part of your gang. Changing the name from Spartan didn’t fool anyone as I note that Michael Dean is still the investment guy there. You must have known they were selling, so why didn’t you ask them to provide them the info.”

JP: “Um…….because the share price would have gone down and we would have all made a lot less money”

S&W: “Well at least you’re honest. Get them to file one tomorrow and we’ll come on board.”

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