.....it isn’t the job of the regulator to make a judgment on the quality of an investment opportunity.
Imagine that? If this is the case, one should be particularly wary about investing in new IPO with revenues/profits especially in the IT (software) sector. Why only those with revenues & profits? Because their higher valuation is premised on the validity of those revenues and profits and can we really trust the revenue recognition method used.
This is one reason why buying a resource microcap is one less worry than an IT microcap....resource microcaps do not make money or generate revenues at early stages.
We have already seen so many tech microcaps of dubious qualities that has failed governance - BIG, GSW, ISX, BUD, NXL to name a few. Many of these tech microcaps rely on just one key metric to boost their share price - revenue growth and because this is the case, I have said before and I will say it again, there are just far too many ways to report revenues in the software sector , these software companies rather report ARR (annual recurring revenue) than statutory revenues in their presentation and different companies have exclusions and assumptions embedded within the ARR definition. Indeed, BIG got into real trouble because their revenue recognition wasn't real.
In addition, most software microcaps are not in the under $100m market cap category, they are way above that. So if it ain't true, the fall in value can be rather significant.
‘Not a merit-based regulator’: ASIC responds to Nuix float fail Yolanda RedrupReporter
Jun 18, 2021 – 3.00pm
The securities watchdog has hit back at claims levelled by Labor Senator Deborah O’Neill that it failed to do its job in allowing the Nuix float to proceed, saying it isn’t the job of the regulator to make a judgment on the quality of an investment opportunity.
The new chairman of the Australian Securities and Investments Commission Joe Longo was grilled on Friday by Senator O’Neill as part of the parliamentary joint committee into the oversight of ASIC and the Takeovers Panel, but he defended those who conducted the Nuix prospectus review, saying he was satisfied they had done their job appropriately.
“We’re not a merits-based regulator in this area, we’re disclosure-based,” Mr Longo said.
“When a prospectus comes in we review it on its face. If any issues arise that come to our attention, either through our own analysis or through a third party ... then we will raise that issue with the issuer.
“ASIC isn’t there to warrant the truth of what’s in the prospectus, that’s the responsibility of the directors. It’s their responsibility to ensure the prospectus is full and complete ... it’s the company, it’s directors and the underwriters that are liable for loss or damage caused by a defective prospectus.”
Despite this, Mr Longo said ASIC had quizzed Nuix on various matters relating to historical accounting misstatements about revenue recognition. But, he said the regulator was satisfied with the responses from the company and was happy to let the float proceed with the existing prospectus.
He described the prospectus review process as neither “tick and flick” nor a deep dive with testing and prodding, rather it’s “somewhere in the middle”.
The debate was triggered following weeks of revelations by The Australian Financial Review, The Age and The Sydney Morning Herald about the business, its poor culture and underinvestment in its software products, a recent history of failing to meet sales forecasts and undisclosed risks in its prospectus.
Mr Longo also said he was confident that ASIC’s processes and procedures were appropriately followed by former acting chairwoman Karen Chester, whom Senator O’Neill had suggested on Thursday had neglected her duties while being distracted by internal politics
Senator O’Neill also quizzed ASIC over the team of people tasked with reviewing the prospectus, asking if it was common practice for a graduate of less than nine months to play a significant role in reviewing the document.
Mr Longo rejected the assertion that a junior had been put in charge of the review, saying while the graduate was involved and did an initial reading of the prospectus, other work was conducted by people in senior management.
Despite asserting his confidence in its review of the Nuix prospectus, since the company has issued multiple earnings downgrades and its shares have tanked since January, ASIC the regulator has begun a new investigation into the investigative analytics software company.
Sources told AFR Weekend some of Senator O’Neill’s Labor colleagues were upset by her personal attacks on the two senior female ASIC commissioners.
While they backed her pursuit of ASIC over the Nuix float, they were unhappy about her using parliamentary privilege to admonish Ms Armour and Ms Chester.
