Directors at collapsed spread-betting group WorldSpreads misled clients into placing bets on the company’s fortunes in order to inflate its share price, it has been claimed.
Executives led customers to believe WorldSpreads’ share price would rise and encouraged them to enter into so-called “long bets” on the shares through the company, according to sources. This was despite spread-betting firms being prohibited from giving financial advice.
Executives led customers to believe WorldSpreads’ share price would rise and encouraged them to enter into so-called “long bets” on the shares through the company, according to sources. This was despite spread-betting firms being prohibited from giving financial advice.
Sources close to the company, which filed for bankruptcy last month, said WorldSpreads did not force clients to “make good” the losses on these bets when the shares failed to rise.
“This all adds up to the directors looking to support the shares in WorldSpreads through the use of clients — this is clear and simple ‘market abuse’,” one well placed source added.
WorldSpreads was placed in administration on March 19 after a £13m “black hole” was found in its accounts, putting about 15,000 clients, mostly retail customers, at risk of losing almost half their money. At the time, administrator KPMG said clients were owed £29.7m, which should have been held in a segregated customer account, but that the group’s total cash came to just £16.6m.
The alleged market abuse is believed to have been taking place for more than a year before WorldSpreads’ collapse. The Financial Services Authority (FSA) is understood to be reviewing the issue as part of a wider investigation after complaints from sources close to the company.
Clients have set up an action group following the collapse. The WorldSpreads Action Group, set up for clients with more than £100,000 held at the group, is exploring legal action against the directors, their insurers and the auditors, Ernst & Young. The action group is being advised by Raworths, the legal firm. WorldSpreads’ clients will be eligible for £50,000 compensation under the Financial Services Compensation Scheme. Beyond that, they will be treated as preferential creditors ahead of WorldSpreads’ general estate. As a result, shareholders and lenders are likely to bear the bulk of the final losses.
The collapse has led to comparisons with the insolvency of the far-larger US brokerage, MF Global, which allegedly broke US laws by mingling client money with its own. KPMG is also administrator to MF Global’s UK arm, which was audited by PricewaterhouseCoopers.
More than 80pc of staff working at WorldSpreads have been made redundant and told they will not receive salary payments owed to them. The group of 52 City workers were told that they will need to apply to the Government’s Redundancy Payments Office for compensation, which can take several weeks to pay out.
KPMG said the business itself will not be sold, although it may dispose of some of its software and data centre assets.
The FSA is set to review how companies handle client money following the collapses of Lehman Brothers, MF Global and WorldSpreads. The City watchdog said it would look at the “inadequate records, ineffective segregation of client assets and low level of awareness of requirements in this area” as part of its current business plan. It is also examining options to prohibit former bosses of failed banks from taking other City jobs.
The collapses of Lehman Brothers and MF Global have led to questions about which clients should have their funds classed as segregated. WorldSpreads’ failure has been referred to City of London Police.
The sudden collapse and allegations of fraud have also raised questions about the sudden departures of chief executive Conor Foley, WorldSpreads’ founder and largest shareholder, and its finance director of eight years, Niall O’Kelly, ahead of the administration.
When the spread-betting company collapsed, a spokesman for Mr Foley released a statement saying: “[He] wishes to make it clear that the first he learned of these issues was on Friday morning [before the collapse on Monday], at the same time as the rest of the board. His decision to step down earlier... was completely unrelated to these issues.”
Mr O’Kelly had originally tendered his resignation in February after a profits warning. At the time, the company said it “maintains a strong balance sheet with net cash of €7m [£5.8m]”.
[src telegraph]
Will KPMG make them pay up?
ReplyDeleteUnless they have a written agreement,which they wont, yes they will make them pay up.
ReplyDeleteI'd love to bet these clients dont end up paying.
DeleteIf they have been given credit without providing proof of funds and havent had their offside positions closed for months on end, then there has been a clear breech of FSA procedure.
One of the main purposes of the FSA is to protect clients. Personally i cant see how they can enforce these debts (i have no interest either way).
I suspect that the sort of clients that this arangement applied to were rather close to the management, probably the biggest clients of Worldspreads who had either credit facilities anyway or substainial sums deposited. It would be highly unlikely that such clients didnt have other bets running at the same time, it would only have been suggested to their very best/biggest clients.
DeleteI doubt if the average punter got a phone call suggesting they take a no lose bet on the share price.
Strictly for "Friends and Family".
If it had worked, both Directors and clients could be accused of insider dealing.
ReplyDeleteIf all the reports are true Worldspreads appears to been a glaring example of a company run by a group of people who ran the business without any regard to any rules or regulations imposed on them. There appears to have been a total disregard for any client, employee or counterparty. They seem to have run the company only for their own self interest irrespective of any law or industry regulations.
ReplyDeleteThe risk of such a company operating in the UK financial services industry was the very reason the FSA exists.
The FSA has completely failed in the regulation of Worldspreads.
Worldspreads has shown the FSA rulebook to be a complete joke.
FSA rules are clearly in practise completely voluntary.
You are too polite. I would call them "a bunch of crooks"
DeleteI do agree with you both.
Deletethis situation demonstrates that the fsa is a joke and has no serious purpose whatsoever. it has allowed retail investors to become involved in a process that they could not feasibly sustain given that typically a private investor cannot sustain large position as were clearly run to produce such spectacular losses. aside from that it let crooks from other companies assume the same role in a business despite criticizing those same people a few years ago at other collapsed firms such as pacific continental and square mile securities. Both of those cost the fscs over £75m. watch this space because the police and fsa will do bugger all to bring to book these people and until they grow a pair and do so this will go on and on. how can a rule book be relevant if that rule book cannot prevent such immoral, crooked and downright intended fraudulent behavior that at best is a conspiracy to commit insider dealing and a disregard for all 10 fsa principles.
ReplyDelete