This article is from the source 'independent' and was first published or seen on . It last changed over 40 days ago and won't be checked again for changes.

You can find the current article at its original source at http://www.independent.co.uk/news/business/analysis-and-features/globo-sails-too-close-to-the-wind-a6709986.html

The article has changed 2 times. There is an RSS feed of changes available.

Version 0 Version 1
Globo sails too close to the wind Globo sails too close to the wind
(1 day later)
It was not so long ago that short-sellers were looked upon as the lowest of the low in the financial world.It was not so long ago that short-sellers were looked upon as the lowest of the low in the financial world.
In the aftermath of the financial crisis, the finger of blame was pointed at investors who practised short-selling – in effect a bet on share prices falling. “Vultures”, “cheats”, “criminals” are just a handful of names they were called as they profited from the collapse of the global financial system. A ban was imposed on all short-selling of financial stocks and regulation tightened. New rules introduced in 2012 mean companies are now forced to disclose their short positions to the financial watchdog, which publishes them, in an attempt to make the practice more transparent.In the aftermath of the financial crisis, the finger of blame was pointed at investors who practised short-selling – in effect a bet on share prices falling. “Vultures”, “cheats”, “criminals” are just a handful of names they were called as they profited from the collapse of the global financial system. A ban was imposed on all short-selling of financial stocks and regulation tightened. New rules introduced in 2012 mean companies are now forced to disclose their short positions to the financial watchdog, which publishes them, in an attempt to make the practice more transparent.
Since then, short-selling is now becoming more widely accepted by the financial community. Mainly because it is easier to practise than it used to be – even retail investors are able to take out short positions on popular trading websites. Since then, short-selling is now becoming more widely accepted by the financial community. Mainly because it is easier to practise than it used to be – even retail investors are able to take out short positions on popular trading websites. 
An increasingly common tactic from short-sellers is to issue a critical report to help the share price on its way down.An increasingly common tactic from short-sellers is to issue a critical report to help the share price on its way down.
The latest to do this was Quintessential Capital Management – a little-known New York-based hedge fund whose 39-page report on Globo alleged that the AIM-listed company, which is behind a mobile business software product, made up clients and falsely inflated revenues and profits.The latest to do this was Quintessential Capital Management – a little-known New York-based hedge fund whose 39-page report on Globo alleged that the AIM-listed company, which is behind a mobile business software product, made up clients and falsely inflated revenues and profits.
“While a minor portion of its business is authentic, the results of our investigation strongly suggest that at least 60 per cent of Globo’s turnover is fabricated,” Quintessential claimed.“While a minor portion of its business is authentic, the results of our investigation strongly suggest that at least 60 per cent of Globo’s turnover is fabricated,” Quintessential claimed.
None other than Simon Cawkwell, the veteran UK-based short-seller better known as Evil Knievil, urged Quintessential to investigate Globo, having shorted it for years.None other than Simon Cawkwell, the veteran UK-based short-seller better known as Evil Knievil, urged Quintessential to investigate Globo, having shorted it for years.
On Friday, Globo suspended trading of its shares on AIM so it could issue a rebuttal before the shares plunged – as they have historically when this type of report has been published.On Friday, Globo suspended trading of its shares on AIM so it could issue a rebuttal before the shares plunged – as they have historically when this type of report has been published.
“Globo completely refutes all allegations made in this report,” the company stated.“Globo completely refutes all allegations made in this report,” the company stated.
On Saturday, an emergency board meeting was held by Globo – which at its peak in 2013 was worth £330m – to come up with ways of defending itself against Quintessential’s comments.On Saturday, an emergency board meeting was held by Globo – which at its peak in 2013 was worth £330m – to come up with ways of defending itself against Quintessential’s comments.
  
But yesterday the company revealed to stunned investors that Costis Papadimitrakopoulos (below), its chief executive, and Dimitris Gryparis, the chief financial officer, had quit after admitting to “the falsification of data and the misrepresentation of the company’s financial situation”.But yesterday the company revealed to stunned investors that Costis Papadimitrakopoulos (below), its chief executive, and Dimitris Gryparis, the chief financial officer, had quit after admitting to “the falsification of data and the misrepresentation of the company’s financial situation”.
Makis Bonanos, the chief operating officer, was also suspended and a committee of non-executive directors established to “ascertain the true financial position of the company”.Makis Bonanos, the chief operating officer, was also suspended and a committee of non-executive directors established to “ascertain the true financial position of the company”.
Globo’s lawyers are understood to have notified the Serious Fraud Office and the City of London Police, and its executives face criminal charges. Worse still, Mr Papadimitrakopoulos failed to disclose that he sold 42 million shares up to 22 October. It is unclear when he sold them, but at the current share price they would be worth £12.4m.Globo’s lawyers are understood to have notified the Serious Fraud Office and the City of London Police, and its executives face criminal charges. Worse still, Mr Papadimitrakopoulos failed to disclose that he sold 42 million shares up to 22 October. It is unclear when he sold them, but at the current share price they would be worth £12.4m.
He also pledged 10 million shares against personal loans to Hong Kong-based Lantau Holdings. The loan will now default, which means the deal is essentially a share sale.He also pledged 10 million shares against personal loans to Hong Kong-based Lantau Holdings. The loan will now default, which means the deal is essentially a share sale.
It is reminiscent of the share-dealing scandal involving former Quindell boss Rob Terry, who offered up shares as collateral, before refusing to buy them back when the price fell.It is reminiscent of the share-dealing scandal involving former Quindell boss Rob Terry, who offered up shares as collateral, before refusing to buy them back when the price fell.
Quindell, another former AIM software darling, was also the victim of a short-selling attack when Gotham City Research, run by Daniel Yu, took aim in April last year. The US firm claimed that as much as 80 per cent of Quindell’s reported profits were “suspect” and was suspicious about how the former country-club operator was able to generate “Google-esque profit margins” in just two years.Quindell, another former AIM software darling, was also the victim of a short-selling attack when Gotham City Research, run by Daniel Yu, took aim in April last year. The US firm claimed that as much as 80 per cent of Quindell’s reported profits were “suspect” and was suspicious about how the former country-club operator was able to generate “Google-esque profit margins” in just two years.
The attack knocked almost £1bn off Quindell’s market cap and despite repeatedly rejecting the allegations, the SFO is now investigating it for accounting fraud after massive writedowns in its 2013 and 2014 accounts.The attack knocked almost £1bn off Quindell’s market cap and despite repeatedly rejecting the allegations, the SFO is now investigating it for accounting fraud after massive writedowns in its 2013 and 2014 accounts.
Quindell wasn’t Gotham City’s first scalp. It took on Spanish wi-fi provider Let’s Gowex last July and was vindicated after the chief executive admitted to manipulating its accounts just a week later.Quindell wasn’t Gotham City’s first scalp. It took on Spanish wi-fi provider Let’s Gowex last July and was vindicated after the chief executive admitted to manipulating its accounts just a week later.
But a company does not have to go bust for a short-seller to be vindicated.But a company does not have to go bust for a short-seller to be vindicated.
Ben Edelman, the Harvard Business School professor and self-styled online advertising guru, took a significant chunk out of the share price of Blinkx in January last year in his report, for which he was paid by two unnamed US investment firms.Ben Edelman, the Harvard Business School professor and self-styled online advertising guru, took a significant chunk out of the share price of Blinkx in January last year in his report, for which he was paid by two unnamed US investment firms.
More recently, shares in business incubator Allied Minds, which counts Neil Woodford’s fund as a backer, plummeted as the US hedge fund Kerrisdale Capital tore the investment proposition apart in a 28-page report. More recently, shares in business incubator Allied Minds, which counts Neil Woodford’s fund as a backer, plummeted as the US hedge fund Kerrisdale Capital tore the investment proposition apart in a 28-page report. 
“Allied Minds is … a dressed-up collection of high-risk, low-reward gambles that we believe has at least 70 per cent downside,” it said.“Allied Minds is … a dressed-up collection of high-risk, low-reward gambles that we believe has at least 70 per cent downside,” it said.
Allied Minds’ share price has recovered some of the value lost and while there was no insinuation of misconduct, investors’ confidence has been shaken by the criticism.Allied Minds’ share price has recovered some of the value lost and while there was no insinuation of misconduct, investors’ confidence has been shaken by the criticism.
Gotham was vilified by Quindell’s evangelical followers as “unethical” and “pirates”. But is questioning a company’s business model for financial gain any different to a broker compiling bullish research for the same reason?Gotham was vilified by Quindell’s evangelical followers as “unethical” and “pirates”. But is questioning a company’s business model for financial gain any different to a broker compiling bullish research for the same reason?
Federal Reserve Bank Chair Janet Yellen holds a news conference where she announced that the Fed will raise its benchmark interest rate for the first time since 2008 at the bank's Wilson Conference Center December 16, 2015 in Washington, DC.
Chip Somodevilla/Getty Images
Profits at the Italian luxury goods group Prada fell 38 per cent in the quarter to 31 October, hit by slumping sales in China. Europe and Japan were the only two areas that saw modest growth for the fashion house, whose 2016 lines were modeled at the Milan Fashion Week. But a strong dollar held back travelers headed to the United States.
TIZIANA FABI/AFP/Getty Images
A man in a space suit watches a television with school children at the Science Museum ahead of the launch of space mission Principia in London. European Space Agency Astronaut Tim Peake is the first publicly funded Briton in Space. The value of the space sector in the UK has grown from £6.5 billion in 2007 to £11.8 billion in 2014. It currently employs nearly 35,000 skilled workers, with current government ambitions for the sector to grow to £40 billion by 2030 and a further 100,000 jobs.
Ben Pruchnie/Getty Images
Commission President Jean-Claude Juncker jokes with a Member of the European Parliament ahead of a debate on the future of the Economic and Monetary Union at the European Parliament in Strasbourg, France, December 15, 2015
REUTERS/Vincent Kessler
A robot arm, developed by Nachi Robotic Systems was on show at the International Robot Exhibition in Tokyo on Wednesday December 3. The Bank of England recently published research that 15 million UK jobs could be at risk of automation in the coming decades.
REUTERS/Thomas Peter
Elizabeth Holmes is the only woman that has made it on the Forbes magazine “America’s richest entrepreneurs under 40” list. Elizabeth Holmes who founded the blood-testing company Theranos came sixth with $4.5 billion (£2.9 billion). Facebook’s Mark Zuckerberg topped the ranking with $47.1 billion.
Kimberly White/Getty Images for Breakthrough Prize
Peppa set out to hog the market - The film and TV distribution company Entertainment One said it was on course to double merchandise sales for the pre-school favourite Peppa Pig to $2bn (£1.3bn) by 2020. Sales of Peppa toys will begin in China next year, following the launch of the TV show there. E1's underlying annual profits climbed by 42 per cent to £52m, on sales up 2 per cent at £337m.
Rob Stothard/Getty Images)
The Eiffel Tower illuminated with the French national colors in tribute to the victims of the November 13, 2015 Paris terror attacks. Tourism and travel stocks fell on Monday in the wake of Friday’s jihadist attacks in Paris – as a leading European policymaker warned that the killings could compound the region’s economic woes.
AFP PHOTO / BERTRAND GUAY
A model holds a 12.03-carat blue diamond during a press preview by auction house Sotheby's in Geneva on November 4, 2015. A 12.03-carat blue diamond could fetch a record $55 million (47 million Euros) when it goes under the hammer by Sotheby's on November 11 in Geneva. Categorised as a fancy vivid blue diamond, the Blue Moon, discovered in South Africa in January last year, is the largest cushion-shaped stone in that category to ever appear at auction
FABRICE COFFRINI/AFP/Getty Images
Burberry shares were down 12 per cent after it missed forecasts for sales in the first half of 2015 as Chinese customers cut back on luxury goods.
Polaroid's owner C&A is suing Go Pro over its Hero4 Session camera, claiming the ice-cube shaped device is a rip-off of the Polariod Cube camera and infringes its patent. Shares in Go Pro, which denied the announcement, fell to an all-time low.
Alamy
In the aftermath of the Volkswagen emissions scandal BMW shares have fallen by more than 5 per cent after claims one of its models exceeded European emissions limits by more than 11 times.
DPA/Getty Images
The coffee chain will provide an interest-free loan to pay a rental deposit that should be repaid within 12 months
Reed Hastings, founder and CEO of Netflix has said that companies greatly underestimate the importance of reference checks when hiring
YouTube/Screen shot/KPCB
VW CEO Martin Winterkorn ousted over diesel emissions that could cause thousands of premature deaths
Groupon has cut 10% of its workforce and closed its operations in 7 countries. When it went public in 2011 it was valued at $12.8bn
2011 Getty Images
Britain's Chancellor George Osborne has urged closer business ties with China when he visited Shanghai, the country's commercial hub, on Tuesday. He declared that the UK and China will "stick together", despite stock market turmoil and faltering economic growth in the world's second-largest economy.
Getty
Manchester United's absence from the Champions League hurt more than the fans' pride last year - it also dented the bottom line. Revenues at the New Uork listed club dipped 8.8 per cent to £395.2m in the year to June, triggering a £1.2 million loss after broadcasting and sponsorship deals dried up. The club said it was now looking to raise $400m from a share issue.
2015 Manchester United FC
Production of the next Star Wars movie has brought an economic impact of some £150 million to Britain, according to company accounts. The seventh movie in the series, The Force Awakens, will be released in December.
The Net-a-Porter founder Natalie Massenet decided to quit the online fashion retailer during "a summer of reflection" that included a spectacular 50th birthday party on the Almalfi coast.
Copyright (c) 2015 Rex Features. No use without permission.
The chief executive of Yahoo, Marissa Mayer, said that she was expecting twin girls in December. She said she would "approach the pregnancy and delivery the same way as I did with my son three years ago, taking limited time away and working throughout". In 2012, she took two weeks off when her first child was born.
2014 Getty Images
Warren Buffett, the world’s third richest person, lost $3.6bn in last week’s market slump
Getty
  
David Lewis at SunGard’s short-selling data specialist Astec Analytics argues that short-selling serves a valuable purpose: “The ability to short a security … helps expose over-valued shares which are effectively attracting and risking investors’ capital in assets worth less than their market price.”David Lewis at SunGard’s short-selling data specialist Astec Analytics argues that short-selling serves a valuable purpose: “The ability to short a security … helps expose over-valued shares which are effectively attracting and risking investors’ capital in assets worth less than their market price.”
In other words, if nobody had flagged concerns about Globo, the shares would only have come crashing down to earth with an even bigger bang further down the road.In other words, if nobody had flagged concerns about Globo, the shares would only have come crashing down to earth with an even bigger bang further down the road.