WorldSpreads update – asset sales, money missing, client list…

Anyone who closely follows the UK financial scene, especially scandals, knows that local reporting on them quickly devolves into rumor mongering and tabloid-like headlines. And the WorldSpreads situation is understandably no different, with headlines such as “ETX rides to the rescue” being thrown around.

There will be no rescue for WorldSpreads clients or shareholders, just a refund of some of clients’ money plus whatever the U.K.’s Financial Services Compensation Scheme will cover.

We understand that the following has occurred, is occurring, or is likely to occur:

1) Client Money Missing. WorldSpreads had £29.7 million in client assets on the books, but only £16.6 million in cash as of last weekend. That means that £13.1 million in client money was missing (more actually, as WorldSpreads itself also had cash, but let’s ignore that for the time being), meaning that fully 44% (!) of client money was missing. This clearly wasn’t misplacement of a little money, it was quite a lot in relative terms for WorldSpreads. Both the FSA and administrator KPMG, along with police investigators, are working quickly to trace exactly where the missing money went, and where (and how, and by whom…).

2) Asset Sales. Again, as per above there will be no overall “rescue” of WorldSpreads, nor a sale of the company. The remaining assets of value which WorldSpreads has (after giving out all cash to clients) are its 5,000-person client list, its trading and back-office systems (software), and then everything else a bankrupt company has – computers, furniture, etc. KPMG has confirmed that the client list will remain confidential and will not be sold. That leaves WorldSpreads’ trading systems, for another spreadbetting firm which believes it might be an upgrade to its own, or for a company outside the industry which wants to break in. WorldSpreads’ administrators will try to extract maximum value for those assets in order to distribute funds to WorldSpreads’ creditors, and that kind of sale can take some time. We’d be surprised if something happens very fast in terms of asset sales.

3) Police Investigation. The WorldSpreads saga is unlikely to end with a quiet whimper and return-of-assets. Again, this was not a few million dollars misplaced from a billions-of-dollars corporation — this was 44% of client assets! The police are already going about their investigation quietly and rapidly, both to help recover (if possible) and client money and to lay charges of wrongdoing if those are warranted.

4) Former Senior Management. Ex-CFO Niall O’Kelly, who left WorldSpreads about a month before the story broke in mid-February, has remained silent. But ex-CEO (and WorldSpreads’ largest individual shareholder) Conor Foley put out a statement that his resignation from WorldSpreads last Wednesday, just 48 hours before the missing client money came to light, was “completely unrelated”, and that “the first he learned of these issues (the financial irregularities) was on Friday morning last, at the same time as the rest of the board.” We’ll just leave it at that.

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