LCG begins its death throes as Charles-Henri Sabet steps down

Today a milestone event among British retail FX firms has occurred, that being the stepping down from his Chief Executive Officer position at long established and long suffering FX and CFD firm LCG by Charles-Henri Sabet.

LCG, formerly known as London Capital Group, was established over three decades ago in London, and has been publicly listed on London Stock Exchange’s Alternative Investment Market since December 2005. The flotation raised £15 million at a placing price of 82p, and on admission the market capitalisation at the issue price was £31.4 million, however the company has floundered and stumbled in the shadows of obscurity whilst its peers flourished under their comparatively superior management and evergreen ability to prosper via high quality operational structures.

Mr Sabet was appointed Executive Chairman of London Capital Group in September 2014 replacing Giles Vardey who stepped down from the position. The announcement finalized LCG’s previous shareholder approved financing of up to £17M from the GLIO Holdings consortium led by Mr Sabet. As part of the financing agreement, Henri-Sabet was slated to take an active role in LCG as its Executive Chairman.

Four years have now passed, and Mr Sabet’s enthusiastic and quick approach to recruiting new talent has been an exercise which culminated in LCG’s reputation for revolving door executive recruitment, and a downward spiral in revenues.

A year prior to Mr Sabet’s consortium having purchased LCG, the firm was an unstable target of acquisition by several firms, however the last remaining bidder, its London-based rival City Index, dropped its interest in acquiring the firm and that the company had not been in any discussions “relating to the possibility of an offer being made for the company.” The broker stated that it is “confident in its future as an independent company under its new CEO Mark Slade.”

There ended the year long saga of possible M&A activity for London Capital Group, as the news followed previous announcements that GAIN Capital and Cantor Fitzgerald (Europe) had dropped their interest. At that time, share prices reduced by over 20% to 34.50p.

The question at that time was whether after looking at LCG financials and their brand strength is what apparent that a bid wasn’t worth it, or were stakeholders expecting too high of a payout to consummate a deal?

As if the company’s fortune could not worsen, following the acquisition, a series of events took their toll on LCG.

Today’s announcement states the following:

The Company today announces that Charles Henri-Sabet has stepped down from the board of the Company and Mukid Chowdhury has been appointed as Chief Executive Officer, effective immediately. Mr Henri-Sabet has resigned to focus on other business interests. The Company would like to thank Mr Henri-Sabet for his contribution to the growth of the Company and would like to wish him the best with his future endeavours.

Mukid joined London Capital Group Limited in May 2016, bringing over 20 years financial services experience. He previously worked for both JP Morgan Chase and ING Bank before spending the last 10 years within the retail derivatives sector.

He held several senior finance positions prior to joining London Capital Group Limited, firstly as Group financial Controller for City Index and then Finance Director for International Operations at Gain Capital. Mukid is registered with the FCA as CF1, CF3 and CF10a and brings significant experience of building and leading finance functions both domestically and internationally as well as taking a leading role in ensuring regional locations operate commercially whilst ensuring regulatory obligations are fulfilled. Mukid is an Associate of the Chartered Institute of Management Accountants.

In addition to that of the Company, Mukid Chowdhury holds or has held the following directorships in the five years prior to the date of this announcement:

Mr Chowdhury certainly has his work cut out.

In December last year, LCG began preparing to list its (very few and very low value) shares on the NEX Growth Market, signaling a potential delisting from London Stock Exchange’s AIM.

Under the NEX market, a company can list its shares on more than one exchange, which is referred to as dual listing – although few companies do. However, there are some companies that are listed on both the NYSE and Nasdaq. Charles Schwab, Hewlett-Packard and Walgreens, for instance, all have dual listings on both exchanges.

One reason for listing on several exchanges is that it increases a stock’s liquidity, allowing investors to choose from several different markets in which to buy or sell shares of the company. Along with the increased liquidity and choice, the bid-ask spread on the stock tends to decrease, which makes it easier for investors to buy and sell the security in the market at any time.

Multinational corporations also tend to list on more than one exchange. They will list their shares on both their domestic exchange and the major ones in other countries. For example, the multinational British Petroleum trades on the London Stock Exchange as well as the NYSE.

None of these factors apply to LCG, especially when considering who actually owns the shares. Unlike the successful companies in London, which have vast market capitalization figures and whose shares are genuinely in the hands of the public, percentage of LCG securities in public hands (as defined in the NEX Exchange Growth Market Rules for Issuers) is 18.56 per cent. The percentage of securities not in public hands is 81.43 per cent – ie, the vast majority of shares are owned by the directors of the company, a status quo that has applied since its purchase in 2014, and prior to that with its previous management structure.

Ergo, it may well be a publicly listed firm on paper, but its shares are not traded, there is no liquidity and as over 81% of them are in the hands of just a few board members, it does not behave as a publicly listed firm.

Speaking in December to a mergers and acquisitions litigation specialist in London, FinanceFeeds gleaned that “it can be considered very unlikely that this will be a dual listing, in fact it appears to be a move which will be followed by a removal of listing from the London Stock Exchange. The company’s ordinary Shares will remain admitted to trading on AIM following admission, however I suspect that will be reversed” said the litigation specialist.

Controversy continued to surround LCG’s operations during the period post-acquistion.

On April 7 last year, retail FX brokerage ACFX, an acronym for Atlas Capital, was the subject of a license suspension by Cypriot financial markets regulatory authority CySec. A generic rationale was provided in a public report by the regulator as to why this action was taken.

A litany of complaints surrounding this matter now adorn public forums, indicating that the tardiness with regard to withdrawal requests made by customers of ACFX is no longer limited to Chinese introducing brokers and their clients, but is now widespread across many region in which ACFX conducted its business.

The vast majority of the company’s senior management subsequently left the firm. FinanceFeeds recently interviewed staff, former employees, and clients with balances ranging from $1,500 to over $80,000 as withdrawals remain outstanding following the mass exodus from the firm by its management.

At that time, FinanceFeeds made contact with sources close to the matter to establish the whereabouts of certain members of the senior management who were at ACFX, as they have, according to our sources, been hired by LCG, a company which, as previously mentioned has had a revolving door approach to senior management recruitment since it was acquired by GLIO led by Charles-Henri Sabet in 2014.

LCG hired former ACFX management as yet more LCG officials leave

In April last year, one source very close to the matter explained to FinanceFeeds “LCG has recently hired the management that lead ACFX to bankruptcy. This will be the final blow for LCG.”

LCG placed over 20 professionals on gardening leave in one fell swoop in 2015, most of whom had joined the company just a matter of months earlier from senior positions within some of London’s top level firms that they had excelled in and had been highly respected by firms of far greater standing.

This occured following our report earlier that year that a further exodus from LCG of senior management had taken place, with Legal Counsel Kate Valdar having gone on gardening leave recently, Peter Wells, who spent 28 years at British interdealer broker ICAP before joining LCG post-acquisition having left LCG to take time out from the city, Nicola Penn, the Executive Assistant to the Directors having moved on, and the firm shutting its LCG digital operations in Tel Aviv just 6 months after establishment.

One particular senior ACFX executive explained to FinanceFeeds:

“Please do continue your investigation and I hope you will do your job to the best standards and you will reveal who hurt ACFX and why those who did all went there (LCG). For now that’s it from my side.” [sic]

At the time, FinanceFeeds contacted Andreas Michaelides, former Head of Investment Research at ACFS (Atlas Capital Financial Services division of ACFX) for his comments on the hiring of certain key ACFX staff by LCG, who said “I have nothing to add.”

FinanceFeeds has reached out to LCG’s legal department by telephone during several days in April last year in order to clarify this matter, however the firm did not provide comment, saying that they were not able to make any statement one way or another.

When contacting ACFX’s head office in Cyprus, a spokesperson explained “We are under license suspension at the moment and therefore I cannot answer any questions of this nature.”

How this was allowed to prevail is an unanswered anomaly to say the least.

The company also went through a very rash period of expensive new directions, only to can them soon afterwards.

The company established a digital marketing entity in 2015, which went West (literally) very soon afterwards.

Setting up an entirely new entity, in a different country to the main operations of a loss-making company whilst its balance sheet has been in the red since 2011 and then canning it just six months later could be construed as a very unusual step to take.

In the beginning of 2015, LCG’s losses ran at approximately £7 million for the first quarter, by the end of the year, the hole in the bucket had increased so much that the firm had made a £13.9 million loss for 2015.

In spite of such losses, LCG moved its operations from Devonshire Square in the heart of the City of London’s financial district to the highly exclusive 1 Knightsbridge in London’s West End, and underwent a rebrand, part of which involved the purchase of the LCG.com domain for $175,000.

In June 2016, FinanceFeeds made contact with Amedeus Muscato, who left his position as CEO of LCG Digital to pursue his business, Soho Media which provides boutique traffic to firms across web, video and mobile advertising, however no comment on the matter was provided.

With almost every key hire having left the firm after a very short time, when peers in London with equal length of time in establishment are renowned worldwide for high quality, have long standing client bases and executives who are wholly committed to their cause, often remaining in their position for between 15 and 25 years, there is a clear disparity between LCG and the stalwarts that maintain London’s excellent reputation as the leading and most respected FX industry center in the world.

Maybe Mr Chowdhury will approach VC investors, but who is going to invest in this?

The question that has to be asked should surely center on whether this level of insecurity displayed by a large, long established spread betting and CFD firm with its own trading environment, a listing on a prestigious stock exchange since 2005, and a place in the Square Mile where absolutely every longstanding retail electronic trading company in existence is renowned for going from strength to strength is at all accidental.