Undisclosed trading by directors at spread betting firm

ACCOUNTS FILED by MarketSpreads state that some former directors and executives engaged in undisclosed trades with the financial spread-betting firm.

The Central Bank ordered MarketSpreads to suspend operations last week, citing capital adequacy and audit issues.

Returns for the nine months ended December 21st, 2009, the period immediately before the current owners took over the business, restate revenues, profits and assets.

The directors’ report accompanying the accounts states that “certain former directors and executives of the company had been engaged in significant and previously undisclosed trading activities with the firm”.

The report adds, that because of the manner of these activities, it was not possible to identify all transactions accurately, and thus, the directors could make no disclosures relating to them in the accounts.

Irregularities discovered in accounts dating back to the 12-month period up to March 31st, 2009, meant that the directors had to restate at €6.3 million, €1.7 million short of the €8 million figure originally reported.

Similarly, it had to restate profits for that year at €1.5 million, down from €4 million, and retained profit at €1.1 million, down from almost €8 million.

The irregularities discovered by the current directors, who were not involved with the business during the period covered by the accounts, meant that auditors Ernst & Young could not give an opinion on the financial statements.

Late last month, former chief executive Brian O’Neill and his colleague Fergus Rice agreed to judgments against them for €1.68 million in the High Court.

They left MarketSpreads midway through last year after the board discovered that they had diverted €1.4 million from the company to another business in which they were involved. The judgement included the principal sum and interest.

When MarketSpreads filed its accounts with the Companies’ Registration Office last week, making them public documents, the qualified audit opinion prompted the Central Bank to order MarketSpreads to suspend its operations.

The company this week returned funds, estimated at between €5 million and €10 million to clients.

An email to customers from joint chief executive John McNicholl indicated that the company is hopeful that the Central Bank will allow it to resume operations within weeks.

It is in the process of meeting capital adequacy requirements imposed on it by the Central Bank. The company is also working to finalise accounts for 2010, which it believes will be reflected in a clean audit.

Mr O’Neill and Mr Rice led a buyout of MarketSpreads from its original parent, Worldspreads plc, in December 2009.

MarketSpreads recently took the first steps towards suing Worldspreads for misrepresentation and breach of warranty.

Worldspreads is under investigation after it was placed in special administration last month when its board discovered a €15 million shortfall in client funds.