Good morning!

The Equities First Holdings scandal continues - I note that Optimal Payments (LON:OPAY) has come out with guns blazing this morning, issuing a reassuring trading update, and making further comments re the incorrectly disclosed Director dealings via EFH, saying;

In relation to the loan and pledge agreement I entered into with Equities First Holdings, LLC, I can confirm that I entered into the agreement outside of a close period, the loan was taken for the purposes of liquidity and it is my absolute intention to repay the loan when it falls due.

The main problem with the EFH "loans" is that they are not really loans at all. Legal title to the shares is transferred to EFH by the Directors entering into these transactions, in return for a payment. That is a sale, simple as that. It would undoubtedly trigger a CGT tax liability. However, it is a sale combined with an option to repurchase the shares at an agreed time & price.

Another key issue is that EFH "loans" are non-recourse. Therefore, the Directors concerned are NOT obliged to repurchase the shares at all, it's entirely optional.

So these EFH facilities should be disclosed as a Director sale, with all terms disclosed. The Directors who look particularly bad over this EFH scandal are the ones who tried to window dress these sales as if they were purchases - i.e. making simultaneous buys of shares, in order to make it look like a Director purchase, rather than a Director sale. That stinks to high heaven! I believe that at best, these Directors have been very foolish to transact with EFH.

Some similar transactions with UBS were flagged up over the weekend, with 3 fully listed companies, including Telecity (LON:TCY) for a Director who has since left apparently. I looked into these 3 Director loans (secured on shares they own), and they look different to the EFH deals to me - the key difference being that the stock is only pledged, but not transferred to UBS unless/until a Director defaults on repayment. So those are not a disposal of shares, they are just borrowing against their shares, using the shares as security. Very different.


Latchways (LON:LTC)

Share price: 731p
No. shares: 11.2m
Market Cap: £81.9m

Consulting my previous notes here, which you can…

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