Shareholders in AIM-listed Quindell, now known as Watchstone Group, have signalled plans for legal action over losses sustained as a result of what they claim were misleading statements or omissions in the company’s representations to the London Stock Exchange
Quindell’s 2014 accounts were published with substantial restatements of prior year revenues, profits and net assets. As a result, an £83m profit after tax in 2013 was restated as a loss of £68m, and the company has been subject to investigation by the Financial Reporting Council (FRC) and the Serious Fraud Office (SFO).
Specialist litigation law firm Harcus Parker has this week sent a letter before action to Watchstone setting out claims by institutional and high net-worth investors which it says will be bought pursuant to section 90A of Financial Services and Markets Act 2000, which provides a remedy for misstatements and omissions by listed companies.
Jennifer Morrissey, a partner at Harcus Parker, says: ‘Between 2011 and mid-2015, Quindell regularly published upbeat market announcements about its financial good health, when it knew the truth was significantly different.
‘We are rapidly building a cohort of shareholders who suffered significant losses when the share price collapsed when the truth started coming out, and we hope Watchstone will recognise the failures of its predecessor and compensate them without the need for a drawn-out legal fight.’
The shareholder claim alleges that between 2011 to 2014, Quindell provided misleading information and/or failed to disclose material facts to its auditors.
This included allegedly overstating the revenues and profits it received from claims company TMC (Southern) Ltd, which led in part to the restatement of Quindell’s past accounts. It also claims that the company issued misleading statements on the fees paid to Ubiquity Capital in connection with various acquisitions, and about the financial performance of PT Healthcare Solutions Corp, a Canadian company in which it bought a 26% stake. In addition, it alleges the issuance of misleading statements on the ability of Himex Ltd (now Hubio Solutions Ltd) to enhance the company’s earnings after its acquisition.
The company was also said to have overstated the likely contribution to its revenue of an increase in noise-induced hearing loss cases; delayed informing the market that Canaccord had resigned as its joint broker and financial adviser; and issued misleading statements relating to the financing of directors' share transactions, including those of former chief executive Rob Terry.
In addition, the claim alleges Quindell made statements about its planned listing on the full London Stock Exchange when there was no reasonable prospect of this occurring, and also delayed disclosing publicly by more than a year that it was being investigated by the FRC.
The FRC investigation saw KPMG reprimanded and handed a £4.5m fine following its admission of misconduct in relation to the audit of the financial statements of Quindell for the period ended 31 December 2013.
The regulator also fined audit firm Arrandco Audit Ltd, formerly RSM Tenon Audit Ltd (Tenon) £1m over misconduct in relation to the audit of the financial statements of Quindell Portfolio and Quindell Ltd, relating to the accounting treatment of the reverse acquisition of Mission Capital plc, and a number of transactions entered into in 2011 by Quindell entities and TMC (Southern) Ltd.
Last month Watchstone resolved a £637m legal claim over the 2015 sale of its professional services arm to Australian law firm Slater & Gordon for £11m. The SFO investigation into Quindell continues.
Harcus Parker says shareholders of Quindell between May 2011 and 5 August 2015 may be eligible to join the action, and has made information available.