This is the story of a company with a complex corporate structure, encompassing many subsidiaries. Built in ad hoc fashion with the help of an insatiable acquisition spree and a renegade CEO.
Let us go on a journey into the world of share tipping and start with the background of one Mr Tom Zaccheus Winnfrith. For those of you who are not familiar with him, TW started what became known as T1ps back in the early part of the new millennia, infamously from his bedroom. What was nominally a tipsheet service grew rapidly under the cultivation of the reputations of various writers including not only himself, but Zak Mir, Simon Cawkwell and others. What with the explosive growth of the internet in the early noughties, he hit the sweet spot in bringing his tipsheets to a wider audience.
A bit of Corporate Background
The Rivington Street Holdings (“RSH“) business which owned t1ps was eventually listed on what was then known as PLUS Markets through a reverse takeover of Commodity Watch PLC in 2008. The original aim was to build a range of broking and finance services for small companies. At this stage RSH already owned PR firm Bishopsgate Communications and corporate finance outfit Rivington Street Corporate Finance.
T1ps Investment Management (“TIM”) was founded in 2008 and RSH acquired the Oilbarrel Ltd business in the same year. Shortly after, in 2009, the old OTC matching service for smaller companies – the venerable old City name of JP Jenkins, was bought.
It was in June 2009 that Rivington Street Corporate Finance raised £1.3m for a vehicle called Worship Street Investments (“WSI”) which was already 9.8% owned by RSH and “related parties”. WSI’s mandate was to invest across the range of companies quoted on PLUS, companies seeking an IPO on PLUS, and AIM companies moving from AIM to PLUS. WSI being advised by TIM and where TW was at the helm. Tom Winnifrith then became Chief Investment Officer of both RSH & WSI, the latter which was eventually sold to Athol Gold – an enterprise that was, yes you guessed it, also connected to TW.
Dec 2009 – RSH purchased a business known as Viewpoint from IQ Holdings, which was to be the first attempt by RSH to diversify away from broking and finance activities.
April 2010 – RSH redomiciled to the Isle of Man with Jim Mellon becoming Chairman. It was in August 2010 that RSH then acquired the software business called Bluecurve – taking on a shade over £2m in debt to complete the transaction. In an extension of the ambitions of RSH in the software arena, the company acquired, in November 2010, another software business called Jovus for $1.7m in cash. Further deals were undertaken in Feb 2011 with the acquisitions of Softline & Ability – paying a total of £1.1m out of what were then becoming much needed cash resources of the company. Ability was eventually sold for a nominal £1.
During the 2010/2011 period, various other acquisitions were made such as Presentation Matters, Quartzite and one Real Man Pizza Company (“RMPC”). Sources close to matters at the time tell us that these businesses all turned out to be largely worthless and ran up huge losses along the way, with RMPC alone being responsible for £250k in operating losses and cash write offs.
An accurate estimate of real hard cash outflows while TW was CEO from 2009 to 2011 is up to £8m. Rivington Street Stockbrokers, also known as JPJShare.com, for example lost over £1.8m in cold hard cash and was eventually closed in 2012. Some would say the fact that Jim Mellon pumped in “only” £3.7m in loans is a credit to the other businesses and the management who remained to try and stem the hemorrhaging of cash that was occurring from late 2011…
Initially, in the early stages of the bull market that commenced in 2009 it appeared that all was going swimmingly well but, like all good things, they invariably come to an end…Sadly, for some of TW’s followers the end was as painful as his own, resulting in the ignominy of being forced out of his creation, Rivington St Holdings (RSH) and winding up plying his wares as a pizza restaurateur at the Real Man. Quite a come down for a man worth several million pounds on paper at the peak of Rivington’s market capitalization… Rivington finally fell into administration at the end of 2013.
Where did it all go wrong?
So what really went wrong at RSH? Well, TW would have you believe from the many blog postings on his site that he was unfairly picked on, dispossessed of his baby RSH and that, following his departure from RSH, the company slid down the hill under the stewardship of the remaining management. Truth is the rot had set in quite a way before that… And which is where we return to the acquisition spree that RSH went on under TW’s leadership…
One of the classic ways to grow a company when you have a public listing is to use your stock “currency” to acquire other cash generative entities. By doing this, assuming you are not paying too high a multiple for the new entity and that you have a decent rating on your own stock, it can be a way to cement your valuation. Problem for TW is that a number of the entities he acquired were not wholly in stock and had large cash components (many of them deferred) to the acquisition terms. This includes one “Real Man Pizza Company”, previously owned by PLUS Markets listed business Cantina Augusto. Quite what a pizza parlour in Clerkenwell had to do with financial media interests escapes us… Still, it became part of the RSH empire and ultimately a drain on the dwindling cash flows of the parent company as relayed above. Results for the 12 months to August 2012 from RSH reported that the pizza business generated an operating loss of £148,000 during the year before TW himself bought the business off his former employer in return for 400,000 RSH shares. In the previous year the pizza company made a pre-tax loss of £88,450.
Former insiders of RSH tell us that one of the real disastrous acquisitions that drained much needed cash out of the business was that of Rosslyn Research and Viewpoint Field Services Ltd that were bought out of then AIM quoted IQ Holdings for a consideration of 5.2m RSH shares. I doubt that TW will be receiving Christmas cards from IQ shareholders given the total wipe-out of RSH shareholders in the end. The figure that has been relayed to us from an insider there in relation to losses on this disastrous acquisition is, amazingly, circa £4m. One begins to obtain an understanding of the operating cash crunch that RSH was suffering directly as a consequence of what now seem to be misguided acquisitions during the period TW was CEO and thus in overall charge of the Group. This is what TW had to say of the acquisition at the time:
“We are delighted to have agreed terms for our latest acquisition. We see plenty of scope to add to our bottom line and believe that once the integration is complete this will prove to be an earnings enhancing deal.”
Sadly, it didn’t quite work out like that…Company insiders also relayed that some of the profitable arms such as Oilbarrel and Minesite were being used to prop up other ailing parts of the business by way of extensive inter company loans, not in itself illegal but, from a man who delights in ripping into company management where businesses are failing, this rather brings to mind the “pot, kettle and noir” saying. One figure relayed to us as an irrecoverable loan from losses in one part of the business is a shade over £600,000. In fact, it was the inter company loans that eventually brought down the RSH Group as each entity, in a desperate scramble for survival, called in their respective loans to each other.
Another notably disastrous venture launched and driven by TW was that of low cost, Isle of Man based share dealing service JPJ Share. Launched in December 2010, TW was full of optimism for the venture, quoting,
“I have long believed that there is a gap in the market to provide a low cost online trading platform. The big execution-only stockbrokers have been operating a cosy club for years, leaving the way open for our experienced team to provide a high quality service at a `no frills’ price. I believe that investors will welcome our vision to `do a Stelios’ and transform this industry.”
But JPJ turned out to be no “easyShare”… In the results for the year to 31st August 2010 TW commented that, “The business is growing in line with budgets and is expected to reach profitability well before the current year end.”
One year later and results for the year to August 2011 revealed however that JPJ “reported a modest loss of £111,582 in its start-up year, reflecting the fact that as a start-up business it carried the equivalent of a full year of costs but only earned eight months of revenue”. It goes on, “Whilst we have invested in excess of £600,000 in JPJShare.com, it is now budgeted to move through the breakeven level during the current year and, with a largely fixed cost base, we then expect the business to become a material profits generator.”
Alas, it never did, with the JPJ business eventually being transferred to The Share Centre after making a loss of over £620,000 in 2011. All together, including start-up costs, that’s another £1 million plus of RSH value that was destroyed under TW’s watch…
It was in late 2011 in the aftermath of the Great Financial Crisis that matters started to really unravel though… TW was then running various funds and one in particular called The T1ps Smaller Companies Growth fund (the other major funds being the T1ps Smaller Companies Gold fund and the ironically named T1ps Elite Income & Growth fund which delivered neither). During that tumultuous summer, when liquidity dried up as the Eurocrisis once more threatened to engulf the globe like the subprime crisis had just 3 years before, the fund began to struggle. It all unraveled in a punishingly short period of time and complaints from investors began to stack up. RSH’s executive board were duty bound to investigate just how the funds were being run, what was causing such terrible fund performances relative to their peers. What was revealed including a look at comparative performance tables of funds run by TW made such bad reading that the decision was made to dispose of the funds.
Not very pretty reading for those followers of “brand TW”. To compound matters for RSH, in the spring of 2012, a number of the businesses referenced earlier began to really bleed cash. In particular the Real Man Pizza Company (yes back to that again!). Ironically, since TW took over the restaurant it has achieved the accolade of a one star hygiene rating by Camden council, with food hygiene and safety rated as “poor”, structural compliance “poor” and confidence in management “little”.
Here’s what TW also had to say about RSH shares themselves in early 2011 on T1ps.com…
“This is the one (tip) you will not take seriously as I am CEO and own 29%. But since both I and Jim Mellon bought shares at up to 35p just a few months ago (share price now 28.5p) I include it as one which I think is very cheap. The company is in closed season so I cannot reveal any new financial information. But what is know is that in the year to August 2010 underlying EBITDA increased by at least 30% to at least £1.05m. This included a minimal contribution from the software business BlueCurve (bought August 2010) and Jovus (bought November 2010) as well as a string of smaller deals concluded between August 2010 & December 2010. If the two software businesses were simply to match historic EBITDA this year that would add another c£500,000 to EBITDA. And RSH also revealed that it reduced its annual cost base since last year by c£600,000. That should give you a base case of what you might look for this time even if trading had not improved thanks to economic/stock market pick up and as a result of other corporate transactions and new product launches such as jpshares.com. The market cap is now £11.5m. You can do your own sums but Jim and I have also done ours and we do not buy shares for charity.”
Suspicions start to arise
It was in the autumn of 2011 that a FOS (Financial Ombudsman Service) investigation was commenced on behalf of two unnamed clients who lost large six figure sums following TW’s recommendations and investing in the funds he was in charge of. The complaint centered on a lack of due diligence, breaches of duty and regulatory obligations. The clients reserved the right to institute High Court proceedings seeking “very substantial compensation”. Considering their professional backgrounds finding their way around a court room would not be a problem. Although the collapse of RSH into receivership may have halted this particular route to compensation no doubt they await the outcome of the official receivers report with great interest, the possibility of taking action against certain individuals may still exist. In one of the many shocking elements to this whole story documents we have been shown in relation to the FOS investigation and for pre hearing preparation relayed the following. In an email dated 7th January 2013 a comment from the Group’s Compliance Officer as part of the investigation read:
“Unfortunately as you know, Tom Winnifrith was responsible for all due diligence undertaken on the underlying assets of the fund, and the choice of assets themselves. I have been through the files I still hold on behalf of the company, but can find no due diligence on the underlying investments”.
“I have also checked on the backup electronic files of the company which I can access and can find no documents there (sic) which relate to investment decisions…”
So there appears to be no evidence of TW carrying out due diligence on the investments he made for the funds or his recommendations… This appears to be a recurring theme as seen later.
Sources within the remnants of RSH tell us that there is a live file at the Isle of Man FSC in relation to TW’s activities and conduct as a fund manager and also potential breaches of fiduciary duty that are automatic when a party receives monies as a regulated entity in relation to recommendations made to the investing public.
For RSH’s own in-house counsel to put this statement in an email to a former client considering legal proceedings reveals the gravitas of the dire situation at TIM under the then stewardship of TW. We repeat the salient point – “… I have been through the files I still hold on behalf of the company, but can find no due diligence on the underlying investments”. Now it is possible that both the company’s files and the back-up files had been tampered with or went missing although we believe the probability of this is low, certainly when under the duress of an official investigation.
For a man tasked with the direction of millions of pounds of other peoples hard earned monies he does not seem to have carried out thorough research on the stock tips he made. It is all too easy in this industry to glibly give recommendations out on stocks without a thought for the consequences of those reading the material and who are trusting in your due diligence, as the unnamed parties referred to in this piece found out to their material personal cost.
As part of the TIM stable, there were also three EIS (Enterprise Investment Scheme) funds under TW’s overall charge. As detailed in a previous post “Tom Winnifrith and the missing £100,000” there is an investigation by KPMG into what were suspected irregularities in the running of the T1ps Small Companies EIS fund revealing the following: the sum of £100,000 was paid by the fund to a company called Commercial Tyre Solutions Ltd (“CTS”) in August 2010 in exchange for 12,853 shares at a price 777p each. Payment being made via an escrow agent – Welbeck Associates. It seems that the shares were however never issued and that CTS actually fell into administration only 8 months later in April 2011. Matters are complex and even the board of RSH seemed to be in the dark about what TW was doing. An internal document seen by us revealed the following conclusion.
“I recommend that a formal investigation is carried out into the actions of Pathway, and the investment of the funds into CTS. I cannot find a reasonable explanation for the investment of the fund at the time it was made or for Pathway purchasing anything from CTS or lending them monies. Despite requests I have been unable to obtain any explanation into the use of Pathway from TW.”
So RSH then instructed KPMG to carry out an investigation into this opaque transaction to try to ascertain where the money had gone to, the purpose of the investment and what TW was doing.
Some of their comments included
“Each of the parties questioned provided a verbal explanation of their role in the investment process. None has provided documents to support their accounts of the events surrounding the investment, with the exception of Peter Greensmith. No two accounts are consistent to a degree that would lead to a conclusion that they reflect a true and complete account of the transaction”.
“Tom Winnifrith – major shareholder in the Rivington Group, senior executive director and senior investment adviser. He accepts that he made the investment decision (in relation to Commercial Tyre Solutions Ltd). He accepts that no formal due diligence was undertaken but insists that rigorous scrutiny was applied during the Rewrie proposal. He confirms that the investment was a direct share placing. He maintains that Rewrie proposed the investment as EIS-eligible.”
Once more it seems that the man tasked with the direction of peoples’ savings was not adhering to the standards expected of him and in particular his fiduciary duty to those parties with regards to the absence of due diligence.
Additional points from the report relayed –
“Preliminary conclusions:
The emails provided by Mr Greensmith contain exchanges between Paul Rewrie and Tom Winnifrith that demonstrate that the recollections of each is incorrect in several material respects:
Tom Winnifrith denied any knowledge of Pathway One plc until recent events had revealed its existence. The emails establish clearly that Tom Winnifrith was aware of and proposed to utilise Pathway One plc as an investment vehicle for Commercial Tyre Solutions Limited.”
Corporate Governance all but disappears
We understand that there is an open file at the FSC in relation to breaches of regulations surrounding stakeholdings in many of the small companies that were part of the funds TW ran and also allegations of front running of investments in the funds given the corporate finance arm’s influence and breaches of Chinese Walls.
Below is an internal document written by the groups Compliance Officer.
Any one of the eighteen points raised would give a Compliance Officer heart palpitations, it shows just how disorganised and badly run the company had become under TW at this stage. There is an admission in point 1 that if the FSA ever came in they would be in serious trouble. Points 13 and 16 seem to show a clear conflict of interest. The funds buying stock in Athol Gold to hold the price up, TW being an advisor to AG then gets performance fees. Basically fund holder’s money being invested in order to bump up TW’s bonus.
The Compliance Officer was clearly getting worried and quite rightly raising regulatory concerns. So then on the scene arrives a rather unfortunately named, Zamayi Sithole. Again, matters are complex but essentially, TW was looking to sell a dormant company called T1ps Investment Management UK Ltd that held valuable FSA fund management licenses (the actual fund management at this point being operated out of a separate subsidiary in the Isle of Man). The potential buyer was a company called Eissen Ltd, controlled by Sithole, for the sum of £20,000 in August 2011. Additionally, Mr Sithole was to invest £600,000 in new RSH loan notes that were to pay a coupon of 10%. It seems from the documents we have seen that Mr Sithole was also looking to buy a lump of RSH stock from Ambrian partners and that was overhanging the market at the time. Net effect would have been Mr Sithole obtaining the valuable FSA licence, RSH receiving much needed cash and the stock price of RSH not being disturbed by a “motivated” seller (Ambrian). Matters were not to work out that way however…
It seems that Mr Sithole applied for a rather large life policy at about the same time from Liverpool Victoria (LV) and that given the size of this policy LV were want to investigate further. RSH’s compliance dept were contacted by LV to verify certain documents. One of them being a signed Share Purchase Agreement selling TIM to Eissen Ltd, which had in fact by now not taken place. The Compliance Officer who we already know was seriously concerned about corporate governance seems to have become even more worried. The Officer filled out and submitted an SAR form, Suspicious Activity Reporting form which absolves the person filling it in from personal criminal liability. The form reveals these points:-
“JPJ Share.com also received account opening requests from two companies associated with Zamayi Sithole one of them being Eissen Ltd. Tom Winnifrith had been trying to force accelerated opening of the accounts without appropriate KYC (Know Your Client) in place and JPJ referred the case to Compliance. Compliance… reviewed the evidence and came to the conclusion that from a regulatory perspective, any association with the client would be very damaging. It also transpired that TW was negotiating selling TIM to ZS (Mr Sithole). TW informed me that RSCF (Rivington St Corp Finance) had been in contact with the FCA and that the FCA had encouraged an application to be submitted. He further commented that following the steer from the FCA we should surely submit on the basis of “you said go ahead what do you think”. I forwarded onto Complyport in complete disbelief that the FCA would ever give such a steer and Complyport confirmed my opinion. The evidence gathered was clear and Complyport summed it up with their comment “The potential person is on the FSA radar and any sale to this individual would, without putting too much colour, regarded as laughable in the extreme unless you want to commit regulatory suicide…”
If that was not bad enough, perhaps more damningly for TW, the then RSH Compliance officer concluded the form with: –
“TW & RD (Russell Darvill) have both acted ultra vires (beyond their powers) and attempted to sell an FSA regulated entity without the approval of the RSH board…”
The deals with Mr Sithole did not complete. With his funds performing terribly, group in financial trouble, millions wasted in an incoherent acquisition spree, corporate governance struggling, conflicts of interest being scrutinised, an investigation by the FOS, possible high court action, a suspected investigation at the FSC for front running of investments, KPMG investigating, due diligence seemingly an unheard of notion TW had entered into 2 opaque transactions without the knowledge and consent of the full RSH board. One deal was an attempt to sell an FSA regulated company to a gentleman who was already on the radar of the FSA, considering the comments from Complyport probably on the radar for the wrong reasons. He also tried to force open trading accounts for the same individual without doing any meaningful KYC. And in the process of attempting this had misled the RSH Compliance Officer. The other deal of course resulting in £100,000 of fund holder’s money disappearing into thin air.
Maybe it was stress, maybe just selfishness that lead to TW embarking upon an adulterous affair with a co worker at RSH. The end result being that he leaves, some say abandoned his then wife and daughter.
And yet the “Tipping” continues
We are also in possession of a letter from an unnamed client who suffered extensive six figure losses and highlight the following comment –
“In December 2011, as a direct result of a telephone invitation from TW, I bought a further 120,000 shares in RSH at a price of 25p – costing £30,000. These shares now appear to be valueless (or perhaps worth 1.5p at best).”
Two issues spring to mind here. Firstly, to encourage another party to invest in a placing without full knowledge of their personal financial circumstance, in essence KYC, and so assess appropriateness and suitability, is a breach of FCA rules and secondly, recall that in late 2011 RSH was trying to raise cash via the loan notes offered to Sithole and they were being issued according to company insiders as the cash crunch was intensifying. To entice an individual to invest in what was an ailing business leaves open questions as to TW’s integrity and morality…
As TW has urged the FCA and AIM Investigations Team to look into matters of various companies that he once supported, we similarly would urge the FCA to do the same given the contents revealed here and in particular, ensure that the recommendations made by TW’s new “Hot Stock Rockets” are fit for release to the public and that thorough and well resourced research has indeed taken place. The industry and the reputation of the financial blogosphere and publications in the UK demand nothing less.
At this time of year it is a tradition for many tipsters and publications to release their New Year recommendations. We relay below the New Year stock tips that TW personally made at the beginning of 2011 and 2012
As you can see 2011 turned out to be a bad year for anyone still following TW.
And not surprisingly 2012 was yet another catastrophe, but surely this can come as no surprise. Let us not forget that no evidence has been found of TW doing any due diligence on any of his tips or investments that his funds made during his time at RSH. It seems to have been the proverbial monkey throwing darts approach.
We therefore find it intriguing that his new guise – Hot Stock Rockets – relays the following in relation to his history – “The Hot Stock Rockets team knows how AIM works. With input from an ex market-maker, an ex fund manager and an ex sell-side analyst, plus a team of veteran market writers, they know how this market works and how to make money.” For many former followers of TW’s New Year tips, and in particular RSH shareholders and fund holders, we would hazard a guess that the last elements of that sentence ring a little hollow.
We also feel it appropriate that the FCA should look closely into the personal holdings of companies tipped on Hot Stock Rockets with those parties connected with this new enterprise.
Along with the omission of the 2011 and 2012 New Year tips from his performance record at t1ps, it seems that TW has also conveniently left out his August 2011 “illustrative sell” tip on Hargreaves Lansdown. Saying sell at 402.5p, the shares currently trade at 1304p, for a loss (without leverage – which is what many investors would do when shorting and thus amplifying losses) of 224%. If this record is a simple arithmetic average of all tips given by TW then using this calculation method and incorporating the New Year tips then try as we might, we just cannot get the figures to tally with the “knowing how to make money” statement.
From what we can ascertain, there is also no reference in his new tipping services to the losses sustained in certain of the funds he ran at T1psIM from their inception to the fund sales or closures or, in the case of the EIS funds, being put into administration. His record as CEO of Rivington Street is not mentioned either.
In the process of this investigation and in particular in relation to his new “tipping services” one rather troubling element stands out that has exercised our minds and that of compliance consultants and legal counsel alike. That is the manner of these “recommendations”. Comments such as
“Inspirit (LSE:INSP) which is developing a novel heating boiler has announced a contract but it is not the big news contract which we had hoped for – we gather that is imminent. The ‘big name customer’ deal will see a far more dramatic re-rating and we expect that news to be out within weeks.”
We highlight the important point which, at face value, appears to be a veiled reference to the possession of non-public material information. If this is the case then there are very clear regulations in relation to this and that is that TW and/or his associates have been made “insiders” or how else could he be aware that it is “imminent”? As an insider you then cannot make trades in relation to this nor encourage others to. Well, if recommending that people buy the stock is not encouraging this we do not know what is…
We have sought additional compliance opinion and are also perplexed as to how his Hot Stock Rockets and Nifty Fifty services (the latter where we understand there has been a very poor take up) can actually operate in an unregulated manner. The affiliation with ADVFN does not provide regulatory cover from what we can see as the only permission from the FCA register that they appear to have relates to “Appointed Representative” status; that is regulation of themselves by extension from the firm that has appointed them as an AR.
At the beginning we referred to TW as being a renegade CEO. This does not infer that he deserted RSH, in fact the opposite is true as RSH quite rightly deserted him in an attempt to clear up the mess he created. TW is a renegade in the sense that he abandoned all the principles required to run a public company and to look after other people’s money. Morality, integrity, good governance, prudence, due diligence, responsibility both professional and private. It is becoming evidently clear why TW goes out of his way to publisize that he has no assets in his own name. He knows full well there would be long queues at the High Court were this not to be the case.
The wider investing public has a right to know what has been revealed here and who is to say there is not more to be uncovered. Get to know your “tipsters” can you trust them? RSH shareholders who got wiped out, fund holders who saw their savings decimated and former followers who are probably feeling gullible or foolish no doubt wish they could turn back the clock. Unfortunately it is too late for them, however this investigation might safeguard newer investors from falling into the same trap with the Shareprophets, UKInvestor, Nifty Fifty, Hot Stock Rockets stable. Leopards don’t change their spots as previous posts have illustrated and history has a nasty habit of repeating itself.
Finally, we also believe that where an individual continues to charge for effective business insight and expertise (which is what share tipping is), that all of the investing community, journalists and regulators alike should be made aware of the fact that the administrators of RSH are currently looking closely into the conduct of TW and his role in the company’s downfall.
The final chapter in the story of Rivington Street Holdings is yet to be written.
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Share Tipsters Uncovered 