A stockbroking firm has been fined more than £500,000 by the City watchdog for failings in its dealings with Quindell, the insurance outsourcing firm that has become mired in scandal.
The Financial Conduct Authority (FCA) has imposed a £530,500 penalty on Cenkos Securities because of flaws in the way it handled Quindell’s botched attempt to switch from London’s junior Aim market to a prestigious premium listing on the London Stock Exchange in 2014.
The broker, which was acting as Quindell's sponsor for the listing switch, has avoided a bigger fine of £757,800 as it has agreed to settle early with the FCA. It is the first time a company linked to the Quindell controversy has been hit by a fine.
Cenkos, which until last August was house broker to Quindell, “represented to the FCA that one of its clients was eligible for a premium listing when it had not carried out the requisite due diligence to ensure that this was correct”, the FCA said, adding that “ultimately the transaction was abandoned”.
The broker also failed to properly account for the impact on the listing of a heavily critical research note on Quindell published by US short-seller Gotham City Research during the insurance outsourcer’s attempt to leave Aim. The attack by Gotham in April 2014 sent Quindell shares tumbling by stoking investor concerns about the company’s finances, worries that later proved to be well founded when it become engulfed in scandal.
The fine is a significant blow to the reputation of Cenkos, an Aim-listed firm that came to prominence two years ago when it masterminded the stock market float of the AA, the roadside recovery group. It also marks a further twist to the Quindell saga. The company, which has renamed itself Watchstone, is currently being investigated by the Serious Fraud Office after it radically revised its past accounts last year to show it had been loss-making when it had previously told investors it was profitable.
A premium listing would have enhanced Quindell’s credibility with investors, but the move from Aim collapsed because it had grown too quickly in the preceding three years and could not show a consistent track record.
The FCA said that Cenkos "failed to identify" that Quindell's fast growth would be a problem, pressed ahead without “critical due diligence”, and did not pull together important reports into Quindell in time for it to achieve its aim of moving to a premium listing by its aim of June 2014.
The watchdog added that “Cenkos failed to consider the impact the Gotham report might have on the transaction” and “whether there was a need to conduct further enquiries into the issues raised” by the short-seller.
Cenkos said: “Since 2014, the company developed and implemented an extensive remediation programme to enhance and improve its systems and controls in relation to its sponsor services, including steps taken in consultation with the [UK Listing Authority].”
Shares in the broker were up 4.6pc to 126½p after the firm avoided the bigger fine. Watchstone declined to comment.
Source : www.telegraph.co.uk/