Explosive insider trading claims as ASIC turns torch on Nuix IPO Neil ChenowethSenior writer
Jun 30, 2021 – 8.24am
The corporate regulator has accused former Nuix CFO Stephen Doyle of realising $17.8 million from insider trading after helping to release a prospectus for the tech company’s December IPO that was false and misleading.
Mr Doyle is at the centre of two investigations that the Australian Securities and Investments Commission opened into Nuix after disastrous falls in its share price which have cost investors $3 billion from the peak in January.
The widening investigations into the disastrous Nuix float now threaten to embroil Macquarie and Morgan Stanley over their roles as joint lead managers and underwriters for the Nuix IPO, and PricewaterhouseCoopers’ role as auditor and investigating accountant.
Stephen Doyle, former CFO at Nuix. ASIC says he benefited from $17.8 million in share sales by his brother ahead of the disastrous half year results.
The Nuix float - which saw shares surge from their $5.31 issue price to peak at $11.86 in January - has become a spectacular failure which has seen Doyle terminated as CFO by “mutual agreement”, CEO Rod Vawdrey announcing he would resign, and a consultancy agreement with former chairman Tony Castagna ended, after a joint investigation by The Australian Financial Review, The Sydney Morning Herald and The Agelast month.
Sensational details of the ASIC investigations were tendered in an affidavit by ASIC markets enforcement senior lawyer Jenny Truong, which was tabled in the Federal Court last Wednesday as part of a secret move by ASIC to prevent Stephen Doyle’s brother Ross from leaving the country.
“ASIC is investigating, among other things whether Stephen Doyle gave to the ASX, or permitted to be given to the ASX, a prospectus including information about the forecast revenue of Nuix for the financial year ended 30 June 2021 that was false or misleading in a material particular, without having taken reasonable steps to ensure that it was not false of misleading,” Ms Truong said in her affidavit, which was released by the court on Tuesday evening. In regard to insider trading, “I believe that Stephen Doyle was aware of the inside information before 12 February 2021 and possibly as early as 31 December 2020,” Ms Truong said.
She said the inside information was that Nuix’s revenue in the December half was 4 per cent below the previous year, and that it was tracking at 44 per cent of the full year revenue forecast in the prospectus—information which would knock 32 per cent off Nuix’s share price hours after Doyle and CEO Rod Vawdrey released the results on February 26.
Justice Brigitte Markovic, who made a suppression order on ASIC’s ex parte application last Wednesday, heard that Stephen and Ross as well as their father Ronald Doyle were the centre of an insider trading investigation triggered by ASIC’s market surveillance team after Ross Doyle sold 2 million Nuix shares between January 22 and February 12, shortly before Nuix reported that it had fallen short of its half year forecast.
Ms Truong revealed that on June 18 ASIC opened a second investigation into suspected false and misleading information in the Nuix prospectus and its annual accounts filed for 2018 to 2020.
June 18 was the day that new ASIC chair Joe Longo told a Senate committee that two investigations into Nuix were on foot, the morning after Labor senator Deborah O’Neill had lashed ASIC in parliament over its lack of action over Nuix.
The twin investigations raise fresh questions over Macquarie Group’s role in marketing the IPO, from which it realised $565 million, and the oversight of Macquarie Capital executives Daniel Phillips and David Standen, who as Nuix directors helped oversee the sale process.
Mr Longo pointedly said at the time that a prospectus was the responsibility of directors.
“So it’s been their responsibility to ensure that the prospectus is full and complete, and it’s the company, the directors and the underwriters that are liable for loss and damage caused by a defective prospectus,” he said.
Ms Truong’s affidavit pointedly notes Macquarie Capital and Morgan Stanley’s role in the Nuix IPO, and PricewaterhouseCoopers’ work as auditor and investigating accountant.
Ms Truong’s affidavit describes an elaborate strategy that she said Stephen and Ross Doyle used to mask the sale of 2 million Nuix shares. But the strategy came unstuck when they decided to dump the rest of their shares on to the market ahead of the release of the disappointing first half earnings—a move that flagged the unusual trades to ASIC Market Surveillance.
Central to the saga is a package of 50,000 options that Stephen Doyle received after he became Nuix CFO in June 2011, which was revealed by The Sydney Morning Herald and The Age last month.
Stephen paid $301,500 to convert the options into shares in September 2012 worth $321,000 and Nuix internal documents show he continued to own them until late 2015, when their value had jumped to $4 million.
However in December 2015 he filed a notice saying that he had sold the shares to his brother Ross, who lived in tax-friendly Switzerland, in July 2012 for $326,500.
Ross Doyle went on to sell a fifth of these shares to Macquarie in 2016, before a 50 for one share split left him with 2 million shares, which were valued at $10.6 million in last December’s IPO.
Ross Doyle had been in Australia since March 2020.
On November 24, six days after the Nuix prospectus was released, he set up a Singapore company, Black Hat Pte Ltd, for which he was one of two directors, with its single share owned by Black Knight Foundation in Liechtenstein.
Truong said Black Knight’s beneficial owners or those with significant control were Stephen Doyle and his father Ronald, and another Liechtenstein company, Signa Consulting Treuunternehmen, which has the same business address as one of Ross Doyle’s companies.
On 30 November, four days before Nuix floated, Ross Doyle transferred his 2 million Nuix shares to Black Hat for a total price of just $2, then on December 9 set up trading accounts for himself and Black Hat with broker Moelis Securities Australia. Later he transferred 200,000 Nuix shares from Black Hat to his own trading account. The Liechtenstein shareholding obscured the real beneficiaries of Black Hat’s share trading and the links to the Nuix CFO.
In January, Ross Doyle told a Moelis broker that Black Hat was “overweight” in Nuix and would sell down. From January 22 to February 11, Ross sold 453,110 Nuix shares held in Black Hat as well as his own account, raising $4.6 million at an average price of $10.22.
But on February 12 Ross Doyle abruptly told his broker to sell all of Black Hat’s remaining 1.55 million Nuix shares. He agreed to sell them below market price, realising another $13.2 million at an average price of $8.54.
Selling them below market price on Friday February 12 cost Doyle at least $278,000 measured from the day’s low, and up to $464,000 measured against the trade weighted average price that day.
ASIC says this was because Ross Doyle knew that Nuix’s half year figures would be bad. Nuix announced the date of its profit announcement on the following Monday, which would be February 26.
Nuix shares crashed after the disappointing results. ASIC claims that the Doyles made a $5.7 million profit by using inside information to sell before the results were released—the difference between their average $8.92 sale price and the $6.06 closing price on February 26. Today the 2 million shares would be worth just over $5 million.
Ms Truong says that much of the $17.845 million realised from the Nuix share sales was used to buy and then sell STW units (which are tied to the ASX 200 Fund), a process which further obscured the payout from Nuix.
However when ASIC Market Surveillance examined trading records ahead of Nuix’s disastrous share plunge on February 26, the Black Hat sale of 1.55 million shares on February 12 stood out, even in the heated Nuix market.
The Black Hat sales accounted for 57 per cent of sales volume on February 12.
It was greater than the total volume traded on 10 of the 14 days prior.
ASIC opened a formal investigation on May 4, and traced the proceeds of the Nuix sales through a series of bank transfers between Ross, Stephen and Ronald Doyle.
After the SMH on May 25 revealed the date discrepancies over when he sold his Nuix shares to his brother, Stephen Doyle was reported to have stopped coming to the Nuix office and flew to Queensland.
Ms Truong said on June 9 Ross Doyle applied for permission to fly home to Switzerland on June 27, stating, “I need to return home as I have been stuck in Australia during COVID.”
She described him as a flight risk.
On June 10 the Nuix board began the process to terminate Stephen Doyle which was announced on June 15.
The suppression order on the travel restraint order and Ms Truoung affidavit was lifted on Tuesday this week, after Federal Police executed search warrants last Thursday on Nuix’s head office, Stephen Doyle’s penthouse in Pyrmont, and Ross and Ronald’s holiday location in Queensland.
Truong said ASIC intended to question Stephen and Ross Doyle this week but that further questioning was likely after ASIC reviewed the findings from the search warrants. Ross Doyle’s interim travel restraint order has been extended until October 25.
(20min delay)
