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Screenshot of a breaking news alert e-mail from Q2 2017
LeapRate Exclusive… LeapRate has learned that the reason for payments services company Paysafe Group Plc (LON:PAYS) seeing a wild ride in its shares today is a report issued by short selling specialist firm Spotlight Research on the company and its exposure to illegal online gambling business out of China.
PaySafe shares traded down by as much as 38% (!!) mid morning to a new 52 week low of £2.29, before recovering to trade down around 11% at £3.29 at the time of writing (13:05 GMT).
The steep action in Paysafe stock triggered two successive 5-minute Price Monitoring Extensions at the London Stock Exchange. A Price Monitoring Extension is activated when the auction matching process would result in an auction price that is a pre-determined percentage above or below the base price. The auction call period is extended for 5 minutes. It occurs if the auction match price breaches price tolerance limits.
Dragged down along with Paysafe were shares of other companies specializing in payments for online business operators, including SafeCharge International Group Ltd (LON:SCH), down as much as 9% today.
So what did Spotlight say?
According to the Spotlight report entitled ‘Paysafe: Material Risks From Regulatory Enforcement Action‘ published this morning on Scribd, Paysafe’s largest customer (i.e. online gambling site bet365.com) may represent an estimated ~50%+ of Paysafe earnings, and is operating a business that appears to facilitate and engage in illegal gambling out of China.
According to Spotlight, Paysafe appears to be enabling both illegal gambling and Chinese capital control evasion through alleged undisclosed related parties run by recent former executives.
Spotlight claims to present evidence that Paysafe’s Asian e-wallet operation, Quick Access, continued to run for about 3.5 years after Paysafe claimed to shut it down due to regulatory concerns.
Apparently recent Chinese court cases may link a recent former Paysafe executive, an alleged undisclosed related party which Spotlight believes is bet365, and by implication, Paysafe itself, together in an illegal gambling ring.
China is now engaged in a high profile crack down on illegal gambling, including making arrests of employees from multi-national entities engaged in catering towards Chinese gambling customers. As such, much of Paysafe’s China related business – which might account for as much as 50% of Paysafe earnings – is at risk of being shut down by Chinese authorities.
Spotlight stated that it remains short Paysafe stock, given the risks listed above.
The full Spotlight Research report can be seen on Scribd here.