Quindell was at the centre of more controversy on Monday as the outsourcing firm’s attempts to explain opaque share-dealing by three directors sparked fresh panic in the City instead.
Shares in the firm – which processes claims for major insurers and is also the UK’s biggest listed law firm – sank 23.5p, or nearly 20 per cent, to 95p as Quindell set out more detail on the dealings by chairman Rob Terry, finance director Laurence Moorse and non-executive Steve Scott – described by City pundits as “jiggery-pokery”.
The trio have taken out loans secured on their own shares from equity loan firm Equities First Holdings (EFH) to fund more purchases of Quindell’s shares, which they believe are “materially below” true worth. The deal was spun by Mr Terry last week as a deal “to allow us to take advantage of this buying opportunity”, and unveiled purchases worth £2m by the trio. But the fresh detail on the deal with EFH showed that Mr Terry, Mr Moorse and Mr Scott have actually sold more shares than they have bought under the sale and repurchase arrangement, which has seen EFH loan £8.8m to the trio. The price on the shares at which EFH was prepared to lend was also just 67 per cent of the average price for the three days before the loan.
EFH is under no obligation to hang onto the shares and it has pledged not to use them for short-selling purposes. But the big haircut taken by EFH on the shares spooked the City, sending Quindell as low as 88.75p at one stage. Mr Terry transferred 8.85m shares over to EFH and received £7.47m in return – an average of just 84.5p.
Although Mr Terry bought another 250,000 shares yesterday on top of the 1 million bought last week, he has only spent £1.5m on shares – although he and Mr Moorse have pledged to spend the entire proceeds of the loan on Quindell shares over the next two years, when the deal expires and they have to buy back the shares from EFH. Mr Scott will do the same but also use funds to “cover certain other tax liabilities”.
Using shares in one’s own company as collateral for loans to purchase more stock is not illegal, but must be declared under AIM Rule 17 where the notification concerns detailed exposure to a “related financial product”.
Mike van Dulken, head of research at Accendo Markets labelled the deal “jiggery-pokery”. “Quindell is not doing anything to make life easier for itself,” he added.
Quindell successfully sued research firm Gotham City, which called the firm “a country club built on quicksand” but shares have plunged 80 per cent since April. Mr Terry said: “The agreements would not have been entered into if the board did not remain confident of meeting full-year market expectations and of the company’s longer-term prospects.”Reuse content