IS AIM REGULATION A TOTAL JOKE AND CAN INVESTORS BELIEVE IN THIS CASINO ANYMORE?

In four days time on Saturday 13th April I shall be debating the motion “AIM is finished” in a ten minute debate with my old friend Richard Poulden at www.UKInvestorshow.com . Richard is a gent and so has taken the short straw in standing up for AIM. I have the open goal – Aim is the true heir to the abomination that the USM (Unlisted Securities Market) became in its final days.

Lack of liquidity is endemic. Investors are bored. Or Angry. Or both. Feckless boards have fleeced them. A regulatory system based on fee-hungry and avaricious Nominated Advisors has failed. Putting some Nomads in charge of regulation is like asking the late Jimmy Savile to look after your kids!

The acid test is a company that regular readers will know that I know well as it is suing me for libel – oil producer Sefton Resources (SER). This company has never in its miserable decade long existence generated a cent of free cashflow after capex. It has relied upon round after round of financing to fund its worthless operations and grosteque boardroom remuneration and perks. While its chairman Jim Ellerton lives in a multi-million dollar mansion in Hawaii, its shareholders have lost more than 99.9% of their IPO investment. This enterprise is simply not investment grade material. So what? Neither are another 200 of the shitty little companies at the bottom of AIM.

What is unique about Sefton is that it has established a pattern of releasing RNS after RNS of questionable basis (to say the least!) in order to pump the share price ahead of fund raisings. The most recent and utterly blatant case of this came on March 5th 2013 when it announced that its February California output rose from 111 bopd to 118 bopd and that it had a platform for growth, blah, blah, blah. You know what’s coming next, yes the very next day it raised £650,000 in a ‘in all but name’ rescue refinancing at 0.6p.

Last weekend I revealed that official California State data showed that February output in fact fell to 104 bopd.  Sefton at face value told untruths to get a placing away.

But this is not the first time. I refer you to July 11 and September 11 2012 RNS releases about output and then to the official data for the relevant months.

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The AIM system has failed investors. Historically Sefton has, at face value, told lies. Its Nomad who is meant to approve all RNS releases discovers this. But instead of dobbing the company in, it merely says that it wishes to quit and Sefton finds another fee hungry Nomad who will take the business on. And so the merry go round continues… Just in case Sefton is mad enough to see me in Court I now have not one but TWO of its past Nomads I shall call to testify to this pattern of behaviour. And that is two from two, I have not bothered asking the others yet.

The current Nomad (Allenby Capital) is yet to quit. Under AIM rules, it was Allenby that signed off on the statements in the March 5th RNS.  The way AIM is meant to work is that if Allenby was party to those apparent lies, or failed to do proper due diligence on the claims made, then it is in the merde. But, if Sefton told untruths to Allenby, then the Nomad should quit and report Sefton and its board of directors to the authorities.

This latest statement is so grotesque that any regulator with a shred of credibility would have to take action. This is clear. Is AIM a market where a company can it seems lie to investors about its trading and issue shares on that basis or is it a market where companies must tell the truth? If it is the former then no-one with half a brain cell should invest in any stock on AIM. It has become nothing more than a casino.

Sefton is, in my opinion, a piss poor two bit joke company. In the greater scheme of things it is irrelevant. But it provides an acid test for AIM. Either the regulators say that enough is enough and order a public naming, shaming and take this one all the way (and say this at once before investors are duped again) or it admits that there are no rules on AIM and the market is thoroughly discredited as was the USM in its final days.  And at that point AIM is finished.

Tom Winnifrith is the UK’s most outspoken financial journalist and will not be cowed by threats of libel cases in exposing companies such as Sefton. His next target is already identified and the fun there will start in May. Click the image below to receive your free copy of my top conviction shorts for 2013.