AIM – Is Enough Being Done to Protect Investors?

Last night (27/9/2016) BBC Radio covered the topic of the AIM market and asked whether enough was being done to protect investors. See File on Four www.bbc.co.uk/programmes/b07wby0z . Here’s a brief summary of the contents with some comments.

The BBC visited Hotel Chocolat, a recent AIM listing, and spoke to Angus Thirlwell, the CEO. He indicated they wanted “light touch regulation” so as to avoid a lot of paperwork and said it was one of the attractions of AIM. Comment: it seems that AIM promotes the market on that basis, while telling investors that in terms of regulations and oversight it is very similar to the main market. Somewhat contradictory is it not?

ShareSoc Director David Stredder explained that almost everyone might be invested directly or indirectly in the AIM market and that now that ISAs have been opened to AIM holdings there are a very wide range of investors.

Simon Taylor-Young explained the role of Nomads and suggested they are supposed to act as both policemen and advisors. He mentioned the problems of AIM companies in one country in particular – China and explained what happened at Naibu.

Richard Edwards, a director of Anpario, explained how he had invested tens of thousands of pounds in Naibu. At one time the company was valued at £70m but it fell over 90% (it’s now delisted and the shares are in essence worthless). Despite some negative announcements he continued to hold the shares. He asked what happened at Naibu and suggested “no one really knows”. Investor Brian Geary flew to China and found information about the company that was not disclosed in the IPO – loans undeclared for example. (Comment: in other words a typical example of complaints about AIM companies that information was concealed to investors, inadequate due diligence done before listing, and thereafter failure to disclose significant news when it comes to light that all might not be as it appeared). It was said the management of Naibu have now vanished.

Giles Elliott, the former Chairman of Naibu, spoke and said he is still pursuing recoveries for shareholders. But said you cannot check all the numbers, interview all the staff or visit all the sites. Naibu Nomad Daniel Stewart was asked to comment for the programme but did not want to do so.

Marcus Stuttard, Head of AIM, then defended it. He said the Nomad model works incredibly well and had been copied in other countries. The interviewer suggested there was an issue in that the Nomads are paid by the companies. Marcus said that Nomads are not policing the companies. But Nomads are held to account and there have been a number of situations where they have been censured and in some cases it caused them to go out of business.

Simon Taylor-Young criticised AIM for not taking action when problems appear in companies. He suggested AIM should be doing this. Marcus Suttard said there were a number of problems – a lot related to the economic backdrop in China. Comment: this is not so surely – the problems were due more to cavalier approaches to accounts and regulations in China, and the inability for directors and shareholders to enforce rights under Chinese law. When asked what he had done to ensure it cannot happen again, Marcus focussed on the complete disclosure of the risks involved in investing in AIM companies (effectively saying that investors should and could have their eyes wide open on the risks they might be facing).

The programme then turned to the activities of former England cricketer Phil Edmonds and his colleague Andrew Groves who launched 9 AIM companies operating in Africa – mainly mining companies but also a medical business named African Medical Investments. This story has been well covered by an organisation called Global Witness. The allegations are that Edmonds and Groves profited by buying a property for $2m (via an offshore company, thus concealing their interest), and then selling it on to the AIM company for $5m which was higher than it’s real value. They also covered the case of Sable Mining where allegedly the mine was acquired by bribing local officials. {Note: both companies subsequently delisted). The allegations are denied.

The programme presenter suggested that AIM is unable to regulate such companies effectively but Stuttard suggested it was simply the reality of risk capital.

David Stredder summarised the position by saying he wants stronger checks on companies before they list on the market and that regulations should be upheld and enforced.

In conclusion this was useful coverage of some of the problems of AIM faced by investors. It was reasonably well balanced and factually correct, but some might think that AIM management got off somewhat lightly.

As readers are probably aware, ShareSoc has been running a campaign to improve the AIM market because of the numbers of complaints from our members (the companies mentioned in the BBC programme are just a very small sample of those who have gone bust or delisted). See www.sharesoc.org/campaigns/campaign-improve-aim-market/ for more information, and to register your support.

Indeed we had a meeting with Marcus Stuttard and colleagues the day before the programme went out and will report further on that later. As we said at that meeting, we do not wish to see investors discouraged from investing in AIM companies because it can be very profitable to invest in good early stage companies. But the AIM market does need to be improved to remove the gross abuses and unacceptable risks that investors face. If the BBC programme concentrates the minds of LSE management to improve matters, so much the better.

As David Stredder has pointed out, taking into account all the AIM failures there could have been many millions of pounds diverted into the pockets of individuals or otherwise lost that could have been invested in sound companies.

Roger Lawson