iSignthis cops it in the neck from ASX
After more than 10,000 retail shareholders piled into the rocketing fintech iSignthis (formerly Otis Energy), it was understandably a big thing for ASX to suspend the company’s shares on October 2 last year.
It has been a bruising fight ever since but anyone who reads this 42 page reportreleased by ASX on April 30 now has a better understanding of the reasoning.
I can’t remember a more damning report ever produced by the ASX as The AFR’s Rear Window columnist Joe Aston gleefully outlined last week as follows:
The controversy revolves around the first six months of calendar 2018. iSignthis’ revenue in the prior six months was only $826,912. But achieving revenue of $5 million for that six months to June 30, 2018, was the trigger – as per the 2014 Prospectus – to issue 337 million new shares, 59 per cent of the then existing share count, to an entity controlled by CEO John Karantzis through the British Virgin Islands.
iSignthis reported revenue of $5.5 million in the relevant period and this one-off revenue was predominantly from four new customers, two of which ASIC had warned the public against doing business with.
Given the excoriating ASX report, the auditor Grant Thornton must be nervous about potential litigation or regulatory action over its decision to sign off on the iSignthis accounts.
There is also an interesting index play associated with the situation at iSignthis.
If you can dazzle enough retail investors to get yourself into the ASX300, as iSignthis did last year when its shares rocketed to a high of $1.90 and a peak market capitalisation of $1.8 billion, the big index funds are then forced to buy the stock and that provides a potential exit for the motivated insiders. However, iSignthis was only admitted into the 300 a few days before it was suspended, although it remains there to this day.
In the case of iSignthis CEO John Karantzis, the suspension means he hasn’t been able to sell some of his shares to those index funds like Blackrock, State Street and Vanguard which were all set to start buying after his interests were allocated 59 per cent of the company in highly controversial circumstances.
Instead, it appears unlikely that the stock will trade again as ASIC conducts an investigation, egged on by the ASX.
The ASX is absolutely right to claim that detail of those four controversial contracts which delivered the magical $5 million six-monthly revenue target that triggered the CEO’s performance shares should have been disclosed to the ASX as material announcements.
If the stock is ever to trade again, it should potentially only be after those new shares have been cancelled, reversing the significant dilution of shares held by the 10,000-plus retail investors. Perhaps CEO Karantzis might want to offer that compromise up rather than continuing his current strategy of playing legal wargames with the ASX and defiantly declaring he and his company have done nothing wrong every step of the way.
