In Cupid's case, the first problem was the publication of a detailed shorting strategy on 5 February that questioned the group's growth story using internet search engine analysis. Such data analysis is notoriously unreliable, but the argument gained weight as short sellers built positions in Cupid which unnerved the market and the shares started to drift down.
Herein lies the first problem - that analysis from an essentially unknown source can create so much uncertainty. So when it emerged that Cupid was to be involved in a BBC investigation into the wider online dating world, worries snowballed and the shares slumped to 140p. In the end the show was pulled, but the damage was done. Cupid issued a statement reiterating that trading was in line and cash levels strong, and added that it was cooperating with investigations - although at this stage there was no outright denial, and buyers remained in short supply.
Cupid's results on the 5 March were indeed in line with market expectations, yet there were concerns over a £2m increase in marketing and advertising costs, which led to brokers downgrading 2013 EPS forecasts by 12 per cent to 17.6p (still, as it happens, an 27 per cent increase on 2012). Shares on the day of the results held their own, but with no further statement from Cupid on the BBC allegations the shares slumped a further 20 per cent slump to 110p the day after.
Little the company did seemed to make a difference. On March 8th chief executive Bill Dobbie stepped into the market buying 865,000 shares at 114p per share and the price recovered to 124p on 12 March. However, institutional investors were doing the opposite, on the 4th March Invest Asset Management sold 238,588 shares, and on 22 March BillCurrie and Iain McDonald acting together for the William Currie Group sold 423,527 shares reducing the stake to 4.5 per cent. Cupid's attempts to reassure the market by continuing with its share buyback scheme also fell flat, partly because instead of buying regular amounts over a set period the Cupid buy-back ranged from 120,000 shares one day to 23,000 another. Buybacks have now been halted having purchased only 1.73 shares, despite authorisation to buy up to 8.34m shares.
Crunch time for Cupid came on Friday 22nd March, though, when the shares collapsed from 112p to around 47p after the publication of an article on the Kyivpost.com speculated that Cupid was engaged in underhand practices. A female reporter for the publication claims to have gone undercover and attended an interview for a role as a "motivation manager" at Cupid. During the interview the reporter claims to have been told she would have to contact hundreds of members a day to keep them interested in the website.
Cupid issued a statement on 22 March stating it does indeed employ a team of "motivation managers", but they do not contact members on a free trial, and only helps those who do subscribe get the most out of the site. Cupid also said they would be employing a big four audit firm to investigate the Ukranian operations. Cupid refuted the allegations on Monday 25 March, when shares bounced by over 60 per cent to 80p as the company stated an internal investigation found it didn't use fake profiles, members on a free trial were not contacted and that subscribers are not enticed to renew memberships. However, Cupid added the results of the independent investigation into the Ukraine operations would not be completed until June.
The reality is that what happens next is anyone's guess - if any substance to the claims is found then serious doubts would hang over the viability of Cupid's business model and the shares could plunge again. But such is the world of Aim. Cupid's rapid growth has lured in many - it's profits doubled last year to £9.2m and will do so again if it hits broker Numis' 2013 forecasts. But like many Aim shares, they lack the liquidity and reputational track record to cope with such potholes. Aim's looser listing requirements exacerbate this problem and mean Cupid's leaden arrow will likely hit many junior market investors in future - it's certainly an example to highlight why we should be wary as restrictions on Aim-shares inclusion in Isas are scrapped.