Gotham casts a long shadow over Quindell

Gotham City Research, the American short-seller named after Batman’s home city, may be a villain in the eyes of Rob Terry, the founder of Quindell.

But in the light of this month’s events, the US firm, which published scathing allegations about the insurance claims group back in April, may well be viewed as a hero by those investors who followed its advice seven months ago and sold shares in the Aim-listed company.

Last night, Quindell was rocked by the revelation that Mr Terry was preparing to step down with immediate effect - along with two of his fellow board members, Laurence Moorse, the finance director, and non-exec Steve Scott. The departures follow a share-dealing controversy that has sent Quindell shares to a three-year low.

The final straw that appeared to have broken shareholders’ patience was Monday’s shock disclosure from Quindell that Canaccord Genuity had resigned as its joint broker. Given that Canaccord handed in its notice on October 21, news of the broker’s resignation rattled investors, as it suggested Mr Terry knew of Canaccord’s exit when he controversially sold shares to raise money earlier this month.

Last Monday Quindell had been forced to correct an earlier statement that suggested Mr Terry, with Mr Moorse and Mr Scott, had taken out a loan, secured on their Quindell stakes, with US firm Equities First Holdings (EFH) to raise funds to purchase Quindell shares. Rather than a loan, the three directors had actually entered into a sale and repurchase agreement, meaning that the trio had effectively sold shares to EFH and promised to buy them back in two years time, Quindell admitted.

The share price plunged, a fall exacerbated by news on Thursday that Fidelity had almost halved its stake in the company. Many traders and analysts think the the EFH agreement is likely to cast a shadow over Quindell in coming days.

Under the arrangement, margin calls are triggered when the three-day moving average of Quindell’s shares is at 70p or below. To satisfy the calls, the three directors either have to provide cash or transfer more shares to EFH. So if the share price stays beneath the 70p level for a third straight day today, the hordes of private investors who offloaded stock on Monday would not be the only ones selling. Mr Terry could be forced into reducing his remaining stake, too.

Quindell shares are now valued at 55½p, down from a record 660p in February and the worst level since the end of 2011, which had proved a pivotal year for the company. In May 2011, Mr Terry reversed Quindell, which had started life as a Hampshire golf and country club, into an Aim-listed shell called Mission Capital. Quindell was already being transformed into an outsourcer that described itself as having “expertise in technology, telecoms, utilities, leisure and retail, which the directors believe has significant potential for growth”.

And grow it did, predominantly through a spate of acquisitions that involved Quindell either buying whole companies or stakes in firms. By this February, Quindell’s market value had swelled to more than £2bn and the group had become a sprawling range of businesses, including telematics — the black boxes insurers use to track drivers’ habits — and pursuing industrial hearing loss cases.

But some institutional investors were worried about Quindell’s cash generation. They were also wary of its rapid growth, said one fund manager, who did not invest in the company. The prolific issuance of shares to fund deals would have put off some investors due to the complex nature of the acquisitions and the time fund managers needed to spend “understanding what’s going on underneath the bonnet”, he said. Many private investors, however, were undeterred and pushed the stock to new heights.

That all came to a juddering halt in April, when Gotham published its 74-page dossier on Quindell that wiped more than £900m off the company’s market cap in a single day. The High Court later ruled in Quindell’s favour in a libel case against Gotham after the US firm failed to provide a defence.

Yet since the Gotham attack, the Quindell share price has plunged 90.5pc. In June, the stock was knocked a 20pc after Quindell disclosed that its long-awaited move to a premium listing of the stock exchange had been blocked by regulators. In a further blow, the RAC pulled out of its telematics joint venture in September.

This latest controversy, over director share dealings, could have far-reaching repurcussions, analysts suggested.

“No one should be putting money into this stock until there has been a full review,” said Lorne Daniel, an analyst at finnCap. “I think it needs the regulators to step in.