ANALYSIS:LATE ON Thursday, the Central Bank ordered financial spreadbetting firm, MarketSpreads, to suspend its operations, citing "capital adequacy and audit issues".
The company’s executives were taken aback by the move. The Central Bank had raised a number of issues with them, but they understood it was satisfied with the steps they had taken.
These included complying with its request that the company hire accountants Grant Thornton to verify that client funds were safe.
MarketSpreads told clients yesterday that this report is due for delivery to the Central Bank on Tuesday, and will show that their cash is segregated from the company’s, properly managed and 100 per cent intact.
Grant Thornton did not comment yesterday.
MarketSpreads cannot return clients’ money, said to be between €5 million and €10 million, until the Central Bank’s authorises it to do so. In January, the bank, which regulates spreadbetting firms, said that to comply with capital adequacy rules, MarketSpreads had to come up with a further €2.8 million.
Major shareholder and director Ray Curran agreed to convert €2.4 million in loans to preference shares and waived €100,000 in interest. It also had available to it a €1.4 million payment that it had withheld from WorldSpreads, its original parent. The conversion of the loans requires other shareholders’ approval at a formal meeting, which will take time, but the company believed the regulator was happy with this.
It appears it was a historic issue that prompted the bank’s action. MarketSpreads this week filed accounts for a nine-month period ended December 21st, 2009, with the companies’ registrar. Its auditor, Ernst and Young, states in those accounts that it was unable to form an opinion as to whether or not the financial statements give a true and fair view of the firm’s position.
The accounts cover the nine months immediately before MarketSpreads was founded. In 2009, it was WorldSpreads Ireland, part of the ill-fated WorldSpreads group, whose main business was placed in special administration in Britain last month. Its current owners bought the business on December 21st, 2009, but the new company was still obliged to provide accounts for the previous nine months.
As they were compiling those financial statements, it is understood that issues came to light that forced them to restate previously published figures for the business and write down assets by €7 million. In essence, the new shareholders believed the company they had bought was a lesser business than the one for which they had paid.
MarketSpreads is suing WorldSpreads for fraudulent misrepresentation and breach of warranty and has withheld a €1.4 million deferred payment from the deal.
The company also recently secured judgments for €1.68 million against former executives Brian O’Neill and Fergus Rice. Last year, its board discovered that they had diverted funds from the business to another company in which they are involved. Both have left the business.
Last November, MarketSpreads management contacted the WorldSpreads plc board to express concerns about the way that group’s Irish business, which MarketSpreads inherited, and the group’s affairs as a whole, were managed up to December 2009.
