London’s Alternative Investment Market has seen so many disasters over its 20-year history that when a senior stock market official in the US called it a “casino”, the jibe stuck. Secrecy over company ownership is often at the heart of AIM’s scandals. Yet regulators and law enforcement have taken little action.
In October 2015, shares in one of AIM’s most highly traded companies, software developer Globo, plummeted and it was forced off the exchange after it emerged the company had set up dozens of fake clients and suppliers in secrecy jurisdictions including Panama and Cyprus.
The UK’s Financial Reporting Council, which monitors accounting standards, is investigating Globo’s auditors. But law enforcement and regulators have been widely criticised for doing too little too late over AIM’s miscreants. In 2009, the Financial Services Authority dropped an investigation into Regal Petroleum, accused of exaggerating supposed oil finds, saying the case was being dealt with by AIM’s own Disciplinary Committee. Regal escaped with a £600,000 fine, a record for the exchange that pales in comparison with the money the company raised following the dubious announcements—more than £100 million.
Regal founder Frank Timis made the news again in 2014 when he personally authorised a $50 million payment from his AIM-listed African Minerals to a shell company in Cyprus in which he owned a secret stake, according to affidavits from a former company executive and an investor. (An internal investigation commissioned by African Minerals “neither proved nor disproved” the allegations.) More trouble the following year forced African Minerals into administration, completely wiping out what was once AIM’s biggest company, valued at more than £2 billion at its peak.
The list goes on. Quindell, an insurance claims manager and another AIM giant, lost more than three-quarters of its value after reports of questionable accounting practices in 2014. And Langbar International collapsed in 2011 after the AIM-listed firm vaunted £370 million of bank deposits that turned out not to exist. The Guardian called it “one of the most audacious, meticulously planned heists ever to take place in Britain”.
Supporters say AIM, with more than 1,000 listed companies worth a combined £71 billion, is flourishing. But the news hasn’t been so good for investors—59 per cent of whom are individuals, and the rest institutional investors which invest on behalf of pension funds and savers’ ISA accounts. Research for the Financial Times in 2015 found that shareholders would have lost money on 72 per cent of all the companies ever listed on AIM, with 30 per cent of cases yielding losses of more than 95 per cent.
There are various theories to explain AIM’s poor performance. The junior market tends to get swept up in fads, from the dotcom boom to overseas property, while the heavy presence of oil and mining companies makes it vulnerable to commodity price swings. AIM’s defenders say canny speculators can still make a fortune on choice stocks. “We’ve got absolutely the right regulatory framework,” the head of AIM, Marcus Stuttard, has said. But a tidal wave of scandals suggests fraud and a lack of oversight are a big part of the problem.