Fitbug - The Gift That Keeps On Giving.

I was a bit sceptical regarding Fitbug's initial rise, because in my eyes any company that has rocketed thousands of percent logically has more downside potential than upside potential, as this is where the familiar trading range exists, which in turn drags strong price support lines lower.


However, I need to eat my hat, because Fitbug just seems to keep rising (N.B. I do hold shares in Fitbug, so I obviously have an upside bias in my view point).


The reasons why this company seems to be doing so well I think can be condensed down into a few points and these points below will only just scrape the surface of the company:



1. Fitbug has official contracts with Samsung and retails in Apple Online Stores Worldwide.


2. Fitbug has broken into the US, within stores such as: Walmart, Kmart, Target and Frys.


3. Fitbug has contracts for selling in Tesco, Sainsburys, Argos, Dixons and numerous other stores in the UK.


4. Fitbug has links with the huge insurer Prudential and other vitality players to offer their products.


5. Fitbug retails online through many outlets, but with the most notable one being Amazon, where the FItbug Orb has an average rating of four and a half stars (the Fitbit Flex only has four stars).


6. The lawsuit against Fitbit from Fitbug for trademark infringement looks as though it's likely to settle outside of court (statistically more than two thirds of civil law suits do), which could potentially provide Fitbug with restrictions on the sale of Fitbit products, but also provide an enormous sum of monetary compensation (at least $10,000,000, as seen on page 12, point number fifty-three  - download.html. Also, if this case is settled out of court, it will likely happen significantly sooner than the expected hearing date in February (12th December onwards).

More details regarding the timing of this case can be found here:

https://cases.justia.com/federal/district-courts/california/candce/3:2013cv01418/264770/31/0.pdf?ts=1387033495


7. The Fitbug Orb is either sold out or is selling out very quickly in the UK retails stores for certain - I know this personally, because the large outlets I went into had out of stock signs above the item in question. In fact, the only reliably stocked place you can acquire one is from Amazon at present.


8. Christmas revenue will - in my opinion of course - be huge, because Fitbug's products retail for around 30-40% less than those of Fitbit, which is a hefty saving in two products that are in raw terms very similar, if not identical.


9. Tech companies aren't valued (and shouldn't be valued) purely from a numerical stand point, meaning that the current market capitalisation of only £25 million is, by the standards of other booming tech companies, a bit low, in my opinion. This is for any number of reasons pertaining to branding, patents, goodwill, etc. Let us not forget that WhatsApp sold for $22 billion to Facebook and that had never even made a profit.



I think that the ultimate reason for the success of Fitbug so far, is because the company has been breaking down the high walls of many popular consumer outlets to sell their products and while good products tend to sell themselves, these two factors combined (great products and excellent retailing of said products) look as though they will continue to push the company much higher in both the short and long term future.


Extra Reading:

Valuing Fitbug:
http://themaskedstocktrader.blogspot.co.uk/2014/11/valuing-fitbug.html


All the best,

The Masked Stock Trader

Quindell - Short Interest Revealed:

Over the past couple of days I've received a lot of emails regarding the uncovering of Roble S.L - who now transpire to actually be a pawn in Tiger Global's box of chess pieces. This post is effectively the culmination of the interesting information in these various emails, which basically require no further input at my end, so I won't be analysing anything. Point number two is the most important one to look at, I hope you enjoy the show!


1. An image showing the proximity of Tiger Global's New York office, to Quindell's New York office:

2. Putting some pieces together:

• Now, Gotham City Research stated in their paper that they went to the QPP new york office, as it's a three minute walk away from Tiger Global's office, suggesting that Gotham City Research potentially are Tiger Global.

• Coatue, who also have a short on Quindell, also see to be Tiger cub members are also just around the corner.

• QPPSAG have discovered Fidelity are linked to a fund called "Gotham", which invested in Quindell and we know they lent the shares in Quindell out (NB: I [The Masked Stock Trader] have no direct proof of this point, so take do your own due diligence, etc).

• The Fidelity Fund called Gotham lent shares to Robel SL based in the Cayman islands and owned by Tiger Global.

• Gotham City research did the damming article and claimed to have walked to QPP offices.

• Coatue are three blocks away from Tiger Global and are also a tiger cub hedge fund.

Pinched from the FT.

Main players:

Fidelity, Tiger Global, Roble, Gotham and Coatue.

Sub-Players:

Tom Winnifrith, Lucien Miers, Dan McCrum (rumour is he was being paid by Ennismore to write a series of negative articles), Paul Scott, Richard Crow (cockney rebel) and an army of internet trolls spamming the public boards with lies.

3. Gotham City Research and Delaware:

The entity was formed on 13/2/2013 (Incorporation Date).
It is registered as an Limited Liability Company LLC entity and not a Corporation. 

Some point to note are:

1. Delaware have no state taxes for LLCs, so many people choose to form new companies in Delaware for this reason, even if the owners are resident in another state.

2. The LLC provides a personal liability shield in the event the entity runs ups debs which it cannot pay. 

3. The LLC has to re-register every year with the state. It has to pay $250 of taxes to do this. They have to pay this on or before June 1st each year. 

4. An LLC is not required to file an Annual Report. 

5. It is possible to purchase online the STATUS of this company for $10, but no other information is available.

6. A corporation would have to submit annual accounts and pay a franchise tax. As Gotham are an LLC they do not have to do this.

7. The Resident Agents Address is the address you sent your LEGAL PAPER work to in the event you want to SUE them. They are the official delivery address for all LEGAL paper work, tax information etc. The Registered Agent will be the person to receive the s**t storm of prosecution paper work that will no doubt be flying across the atlantic in the next month or so. GCR cannot say they have NOT received any paper work as delivery to the Registered Agent is exactly the same as delivering to GCR. It is the responsibility of the registered agent to forward on any paper work.

4. Roble's Cayman Island Registry:

5. Roble and Coaue:

Just reading about Chase Coleman (Mr Roble) on Bloomberg and he is mate with the guy who runs Coatue both trained under the same man no collusion eh? "Coleman’s fund is one of three Tiger cubs that made the top 25 in the Bloomberg Markets ranking. Philippe Laffont’s New York-based Coatue Management LLC ranked No. 10, with a return of 16.9 percent. Laffont, who worked for Robertson at Tiger before starting Coatue in 1999, also invests in technology."

PeerTV - A Great Trading Opportunity:

I think PeerTV (PTV) has a lot of potential for a technical trade over the coming few days and below are listed my reasons behind this trade, combined with my personal targets for the trade:


1. Resistance.

- There is very little price resistance in this share until 0.5p (giving a resistance free upside of more than 100% from these levels) and if the small amount of resistance at 0.5p can be broken there's no real resistance until 1p and after this a retest of the May price high at 2.45p looks achievable.


2. Support.

- One real beauty of this share is that the gradual fall in the share price since May provides good rising support for every intrepidly downside retest we see, which will help to preserve upwards momentum in this move.


3. RSI.

- The move through the mid point at 50 on the RSI is a telling buy signals that's often used by Zak Mir and I've had a lot of success in following this particular move, as the indicator seems to give more guidance on the daily charts min the middle of the indicator's range and not at the extreme ends.

- Any downside move I would expect to retest the RSI 50 level and then either make a break to the downside or upside from there, which will provide us with some ideas later on regarding where we place our (imaginary or real) stop orders.

- To clarify my last point, I'm not a fan of using actual stop orders in stocks outside of the SETS system, because I think that market makers intentionally try and trigger them.


4. Slow Stochastics.

- Currently writing a quantitative program that has a lot to do with stochastic indicators, I like to feel I'm reasonably knowledgeable here and in this case, we've been given a great set up from the slow stochastic oscillator, which moved from %K=1.61%, %D=3.54% to where it closed on Friday at K=47.63%, D=27.05%.

- The important thing to note with stochastic is the level of divergence between these two lines, which with that jump was an awful lot and this implies that there is a lot of upwards momentum in this share that's yet to be expressed and only when this begins to fall below 90 after that extreme of the indicator has been reached, will I begin to reanalyse that position's value in the market.


5. Fundamentals.

- I don't know a lot about the fundamentals here, but what I will say is that currently being only valued at around £1.4m, this company has a vast amount of upside potential based upon the value of the contracts it has and the contracts it looks as it if it soon to be signing.

- Fundamental value I find is very useful for ensuring positive sentiment is with you on a trade and at a brief glance there seems to be a lot of it here.


6. Simple Moving Averages.

- I use fibonacci moving averages for my technical trades and again, being an aspect of the quantitative trading that I'm part of, I hope can describe the current situation well:

- The shorter term averages (3, 5, 8 and 13 day averages) all crossed on Thursday, giving a big buy signal, this was then followed by a day of consolidation that we saw on Friday and then the continued move upwards in these averages this morning confirmed another significant move to the upside.


UPDATE:

I closed this position in accordance with my personal risk management strategies (+60%) and then reopened a long position later in the morning after the initial rise to 0.45p and the consolidation around the 0.35p.

In my opinion (not to be used as trading advice), intra-daily, the technical indicators used above currently suggest (as I write this) that a move to 0.45p and above is still on the cards for today (17th November). A break above 0.45p should lead to a quick advance to 0.5p

Continuing in the same spirit as that last paragraph, I sold my second position out at 0.49p.




All the best,

The Masked Stock Trader

Quindell - The Stages of Growth.

A quick post today,


Now, the idea for this post isn't original, as I pinched the premise from a bulletin board post that was emailed my way! Nevertheless, I feel that it's a good representation of where Quindell is relative to its past-self.


I'm going to begin this "story" (for want of a less patronising word) back on November 15th 2013, when news was released to the market regarding the oversubscribed placing "to fund growth opportunities" for £200m.


From here I'm going to allow the table below to express the majority of the story (these are figures that have either been plucked from RNS' or the Quindell website:

Position in Year	Gross Revenue/£m	Total Cash Position/£m
2013 H1	163.3	35.2
2013 Q3	92.1	23.3
2013 FY	380.1	199.6
2014 Q1	162.9	150
2014 H1	357.3	85
2014 Q3	200	78.9

Now, the danger here is that we forget a couple of things prior to our analysis of these figures:

1. Companies cost money to run and this constantly eats into your cash position.

2. Quindell paid off some £6.5m of debt between the H1 and Q3 results, which again, eats into cash.

3. These revenue figures aren't consistently accumulative in this table, so if a low number for one quarter sticks out you need to add it to its previous half yearly result to put it in a yearly perspective (comparing quarters and halves can get confusing if you're not switched on). 

Analysis:

1. We know there's a time lag of between 6-9 months on the majority of the contracts that Quindell takes on and this goes a long way to explain the falling cash position from the 2013 FY results onwards, because obviously the company will still have outwards expenditure in this period of lag.

2. Quindell became cashflow positive around Q4 of 2013, which means that in the next FY results (to be released in January I think) should be significantly stronger in terms of cash - especially if Quindell continue their ability to outperform their own targets!

3. To make this story easier to understand, let's pretend that the cash position in 2014 H1 and Q3 is the same (we're effectively discounting the debt they paid off). If we do this it then becomes clear that we're at the end of this lagging period and we can expect a significantly improved cash position in the next set of results (along with better profits, revenues, etc).

4. Thus, if you jump twelve months forward in your head, you can see that there's still a vast amount of potential for the company, which is simple not represented fairly in the current share price:

- With a market cap of just under £300m Quindell is currently worth less than half of the revenue it's expecting to take in the whole of 2014 (companies almost always trade a premium)! 

- When ordering UK listed stocks by PE ratio Quindell is around 38th out of all of them listed (although this is using Google's Stock Screener, which I think is a bit questionable, so I recommend you play around with it)!


https://www.google.co.uk/finance/stockscreener

Before I sign this off, I would implore people to read this explanation of the "sale and repurchase agreement", which everyone seems to be misunderstanding (possibly intentionally):

http://themaskedstocktrader.blogspot.co.uk/2014/11/quindell-loan-agreement-what-is-repo.html

All the best,

The Masked Stock Trader

My Experience With Quantitative Finance:

UPDATE (12/04/2015):

From tomorrow, technical analysis reports will be uploaded weekly as a result of the lack of sleep I'm beginning to get from my computers firing up at 2AM every weekday. Moreover, as a medium term quantitative system daily reports weren't exactly necessary anyway.

Swiss markets are now fully integrated and for the mean time this will conclude the stage of adding more markets to the system, while the configurations are tweaked to maximise returns.


UPDATE (04/04/2015):

The system is currently throwing a wobbly regarding analysis of US equities, but French equities have been added and it is my plan to add Swiss equities as well over this easter weekend.

Continued progress is being made in altering the system configuration to reduce down-side risk in the system via stochastic oscillation.


UPDATE (04/03/2015):

The foreign equity markets that are to be analysed daily have been decided as the following:

UK, USA (NASDAQ for the time being), Austria, Belgium, Denmark, and Italy.

In theory the coding required to be changed for this to happen is easy, but I'm waiting for my friendly computer programmer to have a little more time on his hands, so we can get this sorted.



UPDATE (03/03/2015):

The system is currently being configured to work across foreign stock exchanges (not foreign currency markets); therefore output values for these markets need to be remembered to be viewed as in their traded currency - so as to avoid having to make foreign currency assumptions.


UPDATE (22/02/2015):

The system remains slightly odd, in that it's not really designed to trade for you (it could if I wanted it to), but to be a tool to make trading easier and create technical trading ideas that can then be backed up with fundamental analysis to see if this corroborates the technical signals.

The basic principal remains that it uses Fibonacci Simple moving averages (3, 5, 8, etc, up to 233 days) but now with a slow stochastic oscillator over a 14 day period to trade. It then throws a load of volume restrictors, coefficients and thresholds in there too, to make the whole system harder to understand, but more importantly to avoid mis-signaling

The major flaws are that it currently factors in no slippage and no spreads. It buys at the beginning of the day and sells at the end, depending on what buy/sell signals have been produced - it literally buys when buy signals are made and sells when sell signals are made.

Nevertheless, a lot of configuration of the coefficients alongside the raw theory of the system yields impressive results regardless of these underlying issues:

The best yearly backtested results so far (starting with £100,000):

- £200,929 average closing value of the held stock, plus the current funds.

- £98,356 average Top Buy Signallers' closing value of the held stock, plus the current funds.

- £106,271 average Top Sell Signallers' closing value of the held stock, plus the current funds (NOT HUGELY RELEVANT - DESIGNED TO BE USED LONG ONLY).

- £338,126 average closing value of the held stock plus the current funds (winning positions).

- £844,844 average closing value of the held stock plus the current funds (losing positions).

The best yearly backtested results over 13 years and around 250 days - depending on leap years - (starting with £100,000):

- £450,151 average closing value of the held stock, plus the current funds.

- £336,276 average Top Buy Signallers' closing value of the held stock, plus the current funds.

- £463,513 average Top Sell Signallers' closing value of the held stock, plus the current funds (NOT RELEVANT - DESIGNED TO BE USED LONG ONLY).

- £615,899 average closing value of the held stock, plus the current funds (winning positions).

- £601,546 average closing value of the held stock, plus the current funds (losing positions).

--------------------------------------------------------------------------------------------------------------------------

Anyone unfortunate enough to have wondered onto this webpage may know from some of my earlier posts that I'm currently working on a quantitative finance program.


Although I would never be so arrogant to assume that my program is unique, I'm not going to go into detail for obvious reasons of secrecy.


Nevertheless, from a general perspective, the program is designed to function on the UK stock markets and aside from crunching a load of cool numbers in my terminal window and spitting out some results, it looks for stocks traded in GBP with higher than average daily volumes and runs a moving average system along with a stochastic system over the top of these stocks to then "trade them" through the backtesting process.


So, in raw terms these numbers get calculated, processed and make buy and sell signals, which the program then uses to suggest buy stocks (on the buy signals) and then suggest you sell the positions (on the sell signals). The system doesn't short sell securities and is designed as a long only trading system. Neither is the system fully automated, it's designed as a semi-automated system that merely outputs data that is then acted upon by the individual.


Although the program is know where near finished yet (there's a lot of theoretical tweaking that needs to take place and I'm considering designing it to perform over just one industry sector along with a whole host of other things), I've certainly learnt a couple of things about the power of quantitative finance systems:



1. When facing a battle against these systems the average private investor will pretty much always lose.

- This makes logical sense, because the people behind the most famous and powerful quantitative systems (Man Group, etc) are going to not only be the best in the industry, but some of the smartest people worldwide.


2. Their strategies are constantly evolving.

- In the algorithms behind my trading system, my team considered making it fully or partially genetic (at least in the way it calculate positions it should buy or sell). So, it would evolve by itself as a system to improve with less manual input from my team.

- Now, not all quantitative systems are genetic, because it throws up a whole load of issues (they can end up leaning backtesting biases, change the whole ethos of the program the system they're meant to be running from, etc), but this is just an example of the level of sophistication that the funds running these systems have.

- Even if they are not using genetic programming, these systems are constantly being tweaked for performance by whole teams of programmers and mathematicians, meaning that the laypeople rarely get a chance to truly understand the systems or fight back.




I think that as more finance becomes automated and or based on mathematical principals, it becomes more important for people to at least have a vague understanding of these systems and how they work. If you can at least understand the principals of these systems, their advantages and disadvantages then you then can give yourself an advantage as these systems move into more illiquid and private investor concentrated markets (like AIM).


Some useful watching for those interested:

A look at algorithmic trading:
https://www.youtube.com/watch?v=OINqYdkhOAw

A look at HFT trading:
https://www.youtube.com/watch?v=aq1Ln1UCoEU



Cheers,

The Masked Stock Trader

What is Short Selling?

In my experience, the process of short selling securities (making money from the security in question falling in price) tends to be a pretty contentious issue around bulletin boards for popular mid to small capped UK listed stocks.

In part this will be because we all have an inherent desire to find anyone but ourselves to blame when we make an investment mistake and often short sellers of the securities in question take the brunt of this.

I should make my stand point clear here and say that I have no issue with the actual process of short selling, but I do have a particular dislike for coordinated short selling attacks based on lies, which I feel aren't as widely dismissed by the investment community as "pump and dump" market manipulation is - see Quindell plc for an example of a great company that's been trashed by coordinating short sellers.

Now, there are actually many different ways in which you can effectively bet on markets falling in price - Spread bets, Contracts for difference, etc.

How the short selling of shares works:

The easiest way to look at this is to reverse a usual share transaction (excluding commissions, tax, etc):

Let's assume that you purchased an asset for £100 and sold it for £1,000. 

- Profit = £900

Now, we'll turn this around and sell our asset for £1,000 and then buy it back at a price of £100.

- Profit = £900

More specifically, it works like this:

                        Hedge Fund                             1,000 Shares                          Pension Fund 

                                 or        <------------------------------------------------------          or 

                      Asset Manager ------------------------------------------------------> Large Bank 

                                                                         

1. I  borrow some shares, for a small fee, normally from a pension fund, because they have lots of shares that just sit around doing not a lot. 

- By allowing shares to be shorted the pension fund can make a little bit of money effectively risk free.

2. I sell the borrowed shares into the market.

- E.G. I sell 1,000 shares (in a company of your choice) at £20 per share.

3. I buy back the borrowed shares.

- E.G. They're bought back for £10 per share.

Profit = £10*1,000 =£10,000 (excluding the pension fund's fee).

4. Return the shares to the pension fund.

Naked Short Selling:

This is the process of utilising the settlement delay on trading contracts, to make up for the fact that you're selling shares into the market that you haven't been able to borrow from anyone - it's an uncovered bet effectively.

Dangers:

The biggest danger with short selling shares is that you may not be able to repurchase them in the market if the position begins to go against you. This is known as a short/bear squeeze and can be pretty devastating, as you can lose a vast amount more than the long equivalent of the position (someone buying shares only has a maximum risk of 100%, while short sellers can risk more than this if the price rises more than 100%).

Banning Short Selling:

Regularly, people call for the banning of short selling and in 2011 four European countries did implement this temporarily regarding the stocks of major banks, but in reality this didn't work for a couple of reasons:

- A ban needs to be pretty much global or the hedge fund just move to jurisdictions where they can legally short sell.

- Also, without the ability to short sell, you suffer from a very large component of the hedging tools available to funds disappearing instantly.

- It would really need to be done on all forms of short selling (via derivatives), not just the short selling of shares.

- Banning short selling is also just inherently silly, because if a share price is falling then it's going to fall anyway - bad business practices cause falling share prices. However more importantly than this, if you remove a very large aspect of the stock markets then you're going to reduce the total amount of trades and thereby increase market volatility.

- In order for a ban to be effective it has to cover all stocks, not just sector specific ones, or it just moves short selling pressure elsewhere.

Enjoy,

The Masked Stock Trader.

Investigation into Rivington Street Holdings

Good evening,


I received an anonymous email this evening, with both some very intriguing information regarding Mr Tom Winnifrith. I feel that I have a duty to share this, but also to make quite clear one particular point within the document:


"There is insufficient evidence to reach a conclusion as to whether there have been any fraudulent activities."


Make of it what you will, the below is a copy of the information I received (posted like this to further the anonymity of my informer):

Introduction and executive summary

Background

Until October 2010, T1ps Investment Management Limited managed the the Tips Small Companies EIS Fund (“the EIS Fund”). In March 2012 an investor in the EIS Fund complained to the UK Financial Ombudsman Service in respect of T1ps Investment Management Limited for failing to deliver a necessary EIS certificate that was essential to claim the eligible tax benefits in relation to his investment in the Fund. Subsequently, in October 2010 the business and clients of T1ps Investment Management Limited were novated to T1ps Investment Management (IOM) Limited . Satisfactory responses have not been forthcoming to resolve the complaint of the investor, nor the enquiries of the regulators; the Financial Supervision Commission in the Isle of Man and the Financial Services Authority in the United Kingdom.

Accordingly, Rivington Street Holdings plc, the group holding company of T1ps Investment Management (IOM) Limited , engaged KPMG LLC to:

- report on the cash flows in respect of the investment by the EIS Fund from the initial transaction and to seek to establish the final destination of the funds.

- review and report on Rivington’s internal findings and to seek to establish validation from internal and external sources .


Work performed

We obtained copies of emails and attachments from parties engaged in the investment process, with the objective of establishing the factual basis of the investment itself and to establish the actual cash flows that had taken place. The evidence obtained includes a Placing Letter and bank transfer instructions to the escrow agent, Welbeck Associates, together with the bank transfer instructions from the escrow agent to the investee company, Commercial Tyre Solutions Limited.

We identified four key individuals with a clear involvement in the investment . Each was supplied by KPMG LLC with a list of questions in advance of a meeting in person or by telephone. Each individual agreed to respond to the questions. Each was requested to provide any documentary evidence of any kind to support their responses.


Findings

We have established that a payment of £100,000 was made by Woodside Corporate Services Limited (on behalf of the Tips Small Companies EIS Fund) on 13 August 2010, as a response to a Placing Letter prepared by Rivington Street Corporate Finance Limited. The Placing Letter was in the name of Commercial Tyre Solutions Limited and addressed to the Tips Small Companies EIS Fund in respect of 12,853 1p shares at a premium of 777p per share.

The investment proceeds were paid to an escrow agent – Welbeck Associates, who in turn transferred the funds to Commercial Tyre Solutions Limited.
The shares identified in the Placing Letter were not issued. The necessary EIS certificate was not issued. 

Commercial Tyre Solutions Limited went into administration on 27 April 2011. It appears that tangible assets owned by Commercial Tyre Solutions Limited have not been accounted for to the administrators. It is not possible to confirm that the funds received by Commercial Tyre Solutions Limited have been adequately accounted for.

The directors of Commercial Tyre Solutions did not meet their obligations agreed under the Placing Letter. Pathway One plc was alleged to have been interjected as an intermediate company in the investment structure, but no clear conclusion or documented outcome results from its introduction.

Each of the parties questioned provided a verbal explanation of their role in the investment process. None has provided documents to support their accounts of the events surrounding the investment, with the exception of Peter Greensmith. No two accounts are consistent to a degree that would lead to a conclusion that they reflect a true and complete account of the transaction.

   

Introduction and executive summary (continued)

The key points in the explanations of the parties the parties are:

Tom Winnifrith – major shareholder in the Rivington Group,senior executive director and senior investment adviser. He accepts that he made the investment decision. He is certain that the proposal was made to him in person by Paul Rewrie. He accepts that no formal due diligence was undertaken but insists that rigorous scrutiny was applied during the Rewrie proposal. He confirms that the investment was a direct share placing. He maintains that Rewrie proposed the investment as EIS-eligible. He denies any knowledge of Pathway One in the structure.

Paul Rewrie – a director of Commercial Tyre Services Limited and Pathway One plc from September 2010. He states that he approached Peter Greensmith and that David Haines, the shareholding director of Commercial Tyre Services Limited, presented the proposal. He denies any prior knowledge of EIS relief. He has no knowledge of how or why the EIS Fund was put forward as the investor. He states that he had no knowledge of the source of the invested funds. He states that Rivington Street Corporate Finance was the architect of the investment terms. He knew the proposed share placing was not compatible with the company’s capital. He states that he was not aware of or party to the introduction of Pathway One plc into the transaction.

Peter Greensmith – director and chief executive of by Rivington Street Corporate Finance Limited . He states that Paul Rewrie presented the investment proposal personally to him in June 2010. He knew that Paul Rewrie had approached Tom Winnifrith. He took no further part in the investment proposal. He, as Rivington Street Corporate Finance, became the placing agent for the transaction. He states that he received instructions fro Tom Winnifrith to prepare the investment documentation. He states that emails (not provided) between Tom Winnifrith and Paul Rewrie clarify and confirm agreed terms, investment structure and EIS eligibility. He confirms a standard placing letter, modified for the terms, was issued by Rivington Street Corporate Finance. He is insistent that neither he nor Rivington Street Corporate Finance had any further involvement of any description after the completion of the placing. See also ‘Greensmith emails’.

Russell Darvill – director of Pathway One plc and accountant to Rivington Group companies. He states that he had no involvement with the initial investment proposals in Commercial Tyre Services Limited. As a director of Pathway One plc together with Paul Rewrie, he has no knowledge of what loan or investment terms bind Pathway One plc to the EIS Fund or to Commercial Tyre Services Limited. He states that he relied on Paul Rewrie in all respects in relation to the loans disclosed in the audited accounts. He states that time pressure to sign the financial statements for the year ended December 2010 led him to sign the accounts without an understanding of the assets and liabilities relating to the Commercial Tyre Services Limited transaction.

Greensmith emails – we have been provided with a string of emails dated 13 July 2010 to 13 August 2010 between Tom Winnifrith, Paul Rewrie and Peter Greensmith, being amongst the few documents showing contemporaneous accounts of the investment proposals. Pathway One plc was an active part of the investment plan from at least 13 July 2010. Paul Rewrie was aware of the plan from at least 14 July 2010. Terms were agreed by Rewrie and Winnifrith on 29 July 2010 including the involvement of Pathway One plc. Rewrie confirmed the eligibility of the investment in Commercial Tyre Services Limited
for EIS relief. The terms of the Placing Letter were agreed by Paul Rewrie. The terms of the Placing Letter were contrary to the terms agreed between Rewrie and Winnifrith.

Other matters
The Placing Account for the initial investment was in the name of Welbeck Associates and specified as such in the Placing Letter. The funds were paid to that account on 13 August 2010. The financial statements of Pathway One plc containing the alleged revised arrangements for the investment into Commercial Tyre Services Limited were audited by Welbeck Associates .
There is no explanation as to why the terms agreed by Rewrie and Winnifrith on 29 July 2010 were not reflected in the Placing Letter of 12 August 2010, the latter having also been agreed by Paul Rewrie.

 

The administrator of Commercial Tyre Services Limited has advised that he had no co-operation from David Haines and has no records to identify creditor payments or asset disposals.

Preliminary conclusions

The emails provided by Mr Greensmith contain exchanges between Paul Rewrie and Tom Winnifrith that demonstrate that the recollections of each is incorrect in several material respects:

Tom Winnifrith denied any knowledge of Pathway One plc until recent events had revealed its existence. The emails establish clearly that Tom Winnifrith was aware of and proposed to utilise Pathway One plc as an investment vehicle for Commercial Tyre Solutions Limited.
Paul Rewrie denied any knowledge of Pathway One plc before the receipt of the funds by Commercial Tyre Solutions Limited on 13 August 2010. The emails establish that he was aware of the existence and purpose of Pathway One plc from at least 14 July 2010. He denied any understanding or knowledge of the EIS Fund or EIS relief generally. In the email dated 28 July 2010 he explicitly confirms that the investment [in Commercial Tyre Solutions Limited ] is available for EIS relief.

Paul Rewrie denied any knowledge or involvement in the terms of the investment in Commercial Tyre Solutions Limited . By email dated 12 August 2010 Peter Greensmith sent a draft Placing Letter following a discussion seeking confirmation that the calculation was correct.

There are three potential areas for a fraudulent transaction.

• that the initial investment proposal was a fraud on the EIS fund
• that the proceed of the investment were fraudulently expended by Commercial Tyre Solutions Limited or its officers or employees
  
• that residual assets were fraudulently disposed of before the appointment of the administrators
  There is insufficient evidence to reach a conclusion as to whether there have been any fraudulent activities.
  It is undisputed that the investment in Commercial Tyre Solutions Limited was not subjected to any formal due diligence or independent review. The decision to invest was taken by Tom Winnifrith. The involvement from an investment committee, if any, appears to have been peripheral.
  

No formal responsibilities or processes were in place to ensure that the agreed investment was fully executed. No formal responsibilities or processes were in place to safeguard the assets of the EIS Fund.

Next steps

To clarify the positions of Winnifrith and Rewrie, the evidence pointing to a different account of events should be presented to them and an opportunity given to amend their account or counter the evidence.
Consideration should be given to the further investigation of the actions of David Haines in expending the invested funds and possible disposal of the tangible assets of Commercial Tyre Solutions Limited .
Consideration should be given to the further examination of the role and actions of Russell Darvill and Paul Rewrie as directors of Pathway One plc.

Limitations

Our work does not constitute an audit and does not provide the same level of assurance as an audit. The verification performed is as stated in this report and no other verification should be inferred.

This is an interim report and we reserve the right to amend or change any findings or conclusions where further or better information comes to light.


© 2012 KPMG LLC, an Isle of Man limited liability company and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (‘KPMG International’), a Swiss entity. All rights reserved.

All the best,

The Masked Stock Trader