However, this morning the company has released a further update stating that an emergency board meeting was convened on Saturday, 24 October 2015 to discuss the allegations made in the Quintessential report with a view to appointing an independent forensic accounting team to investigate the claims. At that meeting chief executive Costis Papadimitrakopoulos brought to the attention of the board “certain matters regarding the falsification of data and the misrepresentation of the company's financial situation”, and offered his resignation, as did chief finance officer Dimitris Gryparis.
Subsequent to this board meeting a committee of the board was set up, consisting only of the independent non-executive directors. The resignations of Mr Papadimitrakopoulos and Mr Gryparis were accepted with immediate effect. Also, chief operating officer Gerasimos Bonanos has been suspended from his duties with immediate effect, pending the outcome of appropriate investigations. All of the executive directors have agreed “to make themselves available and fully co-operate with any investigations.”
The committee has also initiated discussions with advisers to ascertain the true financial position of the company and has asked Globo’s lawyers to notify the matter to the appropriate authorities. In the meantime, the shares will remain suspended from trading.
Points to make
There are certain points I would raise here. Firstly, having contacted Globo’s PR company Brunswick in early August following a 30 per cent decline in the company’s share price from a high of 61p in early June, having originally recommended buying at 47p earlier this year ('Going global', 2 Feb 2015), I subsequently interviewed Mr Papadimitrakopoulos for the best part of 45 minutes and covered a number of issues which had been raised in certain reports circulating the internet and which I believed were behind the share price decline ('Short sellers in for shock treatment', 4 Aug 2015). The share price at the time was 42.75p.
The issues I discussed included the cash flow generation of the company, the purpose of the proceeds of the proposed yield bond issue, the company’s current banking arrangements, the credit quality of the financial institutions holding Globo’s reported €100m plus cash pile, the exposure of the business to the Greek economy, and the US expansion strategy. I was happy with the responses given and maintained my positive stance at the time. I also assessed the company’s upbeat half year results and a proposed acquisition at the end of last month (‘Platforms for success’, 30 September 2015).
In my view it was only reasonable to accept that the financial statements given to the company’s auditors, and the replies given to my questions, were a true representation of the Globo’s financial position. However, for the above news to emerge less than four weeks after publishing its half-year results, begs the question as to when Mr Papadimitrakopoulos became aware of the falsification of data and misrepresentation of the company's financial situation? Ultimately, the board is employed and is accountable to Globo’s shareholders, and has a duty to run the company in a legal manner. Clearly, we will have to wait for a forensic examination of the company to determine the scale of the falsification of data and misrepresentations made. Joint house broker Canaccord Genuity isn’t waiting and resigned its position with immediate effect this morning.
Director dealings raises questions
The other bombshell which came to light this morning was that on Sunday, 25 October, so one day after his resignation, Mr Papadimitrakopoulos informed the company that he had sold 42.04m Globo shares (upto Thursday, 22 October 2015), and pledged 10m shares of Globo under a personal loan agreement with Lantau Holdings Limited. The loan will default at close of business on Monday, 26 October 2015 because of two consecutive days of the suspension of the company's shares from trading.
The number of shares which Mr Papadimitrakopoulos now holds is 27.7m (including the 10m pledged shares) representing 7.42 per cent of the issued share capital. His previously notified holding was 69.78m shares (and voting rights) which represented 18.67 per cent of the issued share capital. The board has requested additional details about these share dealings as it does not yet possess all relevant information about their timing and nature. A further announcement will be made once this information is received.
The obvious question that the board should be asking is whether Mr Papadimitrakopoulos was aware of any information concerning the falsification of data and misrepresentation of the company's financial situation when he made these share disposals, as withholding any information of this nature from investors will have created a false market in the shares, and one which he would have exploited by selling his shares? I await a further update from the company.
Clearly, this is not looking at all good for all parties as there is huge reputational damage for Globo, its business will suffer greatly as a result, and shareholders should brace themselves for losses on their holdings when the shares do return to trading. I also feel strongly that an immediate investigation should be undertaken by the Financial Conduct Authority and London Stock Exchange to ascertain whether Globo’s board of directors, who are ultimately accountable to shareholders, have acted properly in their duties as directors and complied with rules governing publicly listed companies.
Please note that I have also written another column today which is enclosed in the list below.
MORE FROM SIMON THOMPSON...
I have published articles on the following 51 companies in the past five weeks:
■ Trakm8: Run profits at 195p, target 220p; Character Group: Run profits at 518p, target 575p; Marwyn Value Investors: Buy at 220p; Global Energy Development: Speculative buy at 30p; Software Radio Technology: Buy at 27p, target range 40p to 43p; Globo: Buy at 33p, target 69p; Pittards: Hold at 105p ('Cashed up for cash returns, 22 Sep 2015).
■ KBC Advanced Technologies: Buy at 112p, initial target 142p; K3 Business Technology: Run profits at 298p; Cenkos Securities: Buy at 177p; Netplay TV: Buy at 10p ('Small cap value plays', 23 Sep 2015).
■ Miton: Buy at 26.5p, target 35p; 32Red: Buy at 73.75p, target 90p; Stanley Gibbons: Buy at 138p; Vislink: Buy at 40p, target 70p ('Building momentum', 29 Sep 2015)
■ Moss Bros: Buy at 97p, target 120p; GLI Finance: Buy at 52p, target 80p; Town Centre Securities: Buy at 315p, target 350p; Globo: Buy at 39p, target 69p ('Platforms for success', 30 September 2015)
■ Safestyle: Run profits at 255p; Epwin: Run profits at 138p; Manx Telecom: Buy at 188p, target 210p ('Income plays with capital upside', 1 October 2015)
■ LXB Retail Properties: Buy at 86p, target 99p ('Bag a retail property bargain', 5 October 2015)
■ Creston: Run profits at 162p, target 171p; Fairpoint: Run profits at 184p, new target range 200p to 220p; Trifast: Buy at 114p, target 140p; 600 Group: Buy at 16p, target 24p; Renew Holdings: Buy at 315p, target range 350p to 375p; Stanley Gibbons: Hold at 105p ('Engineering ratings upgrades', 6 October 2015)
■ STM Group: Buy at 71p, target 80p ('Riding small cap winners', 7 October 2015)
■ First Property Group: Buy at 39.5p, target 49p ('In pole position for re-rating', 7 October 2015)
■ Tristel: Run profits at 99p, target 110p ('Cleaning up with superbug buster', 7 October 2015)
■ Equity market strategy ('Bull market pointers', 8 October 2015)
■ Gresham House: Buy at 320p, target 450p ('A mandate for strong growth', 12 October 2015)
■ Tristel: Run profits at 123p, new target 130p to 135p ('Cleaning up', 13 October 2015)
■ AB Dynamics: Run profits at 267p ('Under-promising, over delivering', 13 October 2015)
■ Trakm8: Run profits at 245p ('Motoring ahead', 13 October 2015)
■ PROACTIS: Buy at 102p, new target 130p ('Secured growth for re-rating', 13 October 2015)
■ Avation: Buy at 148p, target 200p ('Flying higher', 14 October 2015)
■ Cohort: Run profits at 400p ('Cohort on a roll', 14 October 2015)
■ Vertu Motors: Buy at 68p, target 80p to 85p ('The virtue of Vertu', 15 October 2015)
■ Urban&Civic: Buy at 274p, target 325p ('Plotting a break-out', 15 October 2015)
■ MS International: Buy at 180p, initital target price 240p ('Making waves', 19 October 2015)
■ Pure Wafer: Buy at 175p, new target 200p ('Valuation anomaly worth exploiting', 20 October 2015)
■ Greenko: Hold at 87p, new target 100p ('Greenko's cash return', 20 October 2015)
■ Elegant Hotels: Buy at 108p, target range 130p to 135p ('An elegant investment', 20 October 2015)
■ BP Marsh & Partners: Buy at 157p, target 180p ('Cash-rich value play', 21 October 2015)
■ Crystal Amber: Buy at 170p; Dart Group: three month trading buy at 468p; Grainger: three month trading buy at 247p; Leaf Clean Energy: await news on Invenergy asset sale ('A quadruple play', 22 October 2015)
■ UTV Media: Buy at 184.5p, target 215p ('On the right wavelength', 26 October 2015)
■ Globo: shares suspended at 28p ('Globo bombshells', 26 October 2015)
■ Simon Thompson's book Stock Picking for Profit can be purchased online at www.ypdbooks.com, or by telephoning YPDBooks on 01904 431 213 and is being sold through no other source. It is priced at £14.99, plus £2.95 postage and packaging. Simon has published an article outlining the content: 'Secrets to successful stockpicking'
