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GOTHAM CITY RESEARCH LLC

Quindell PLC: A Country Club Built On Quicksand

GOTHAM CITY RESEARCH LLC www.gothamcityresearch.com info@gothamcityresearch.com GOTHAM CITY RESEARCH LLC Quindell PLC: A Country Club Built

The Group [Quindell] is a Portfolio Of established Ethical, Industry Trusted, Expert Technology and Business Process Service companies. Quindell CEO, Robert Terry

Founder Rob Terry invested £12m personally Quindell Investor Teach-in 2013 Question: Did he really?

Disclaimer:

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Table of Contents

I.

Disclaimer

II.

Summary

III.

Introduction

IV.

Quindell s Anomalous EBITDA Margins

V.

CEO Robert Terry Spent £12 million to Build a Country Club

VI.

Quindell s Largest 2009/2010 Customer is Itself (ClickUs4.com)

VII.

41% of 2011 Revenues Comes from an Undisclosed Customer

VIII.

Quindell s Phantom Acquisitions (2011-Present)

IX.

Telematics Accounting Issues & Related Party Transactions

X.

The Dark Side of Quindell Legal Services

XI.

Additional Accounting and Oversight Issues

XII.

Valuation: Worth No More Than 3p per share

XIII.

End Notes

GOTHAM CITY RESEARCH LLC

a SUMMARY    Company: Quindell PLC CEO: Robert Terry Ticker: QPP Exchange: London s
a SUMMARY
Company: Quindell PLC
CEO: Robert Terry
Ticker: QPP
Exchange: London s AIM
Price Target: 3.00p/share
Share price: 39.00p/share
(as of the 18 th of April)
Market cap: £2.41B
52-week high: 45.50p
52-week low: 5.40p
Shares outstanding: 6.19B
Avg. Daily Vol: 72.09M
2013
Revenue: £380M
42%-80% of Quindell s profits are suspect, as we are
unable to reconcile the whole with the sum of the parts.
Quindell was little more than a country club until
2008/2009, yet QPP somehow began reporting
Microsoft/Google-esque profit margins in 2010/2011.
26%-43% of Quindell s 2009 and 2010 revenues came from
Clickus4.com, a subsidiary owned by CEO Robert Terry.
41% of Quindell s 2011 revenues came from an
undisclosed related party (controlled by a QPP executive).
10+ acquisitions lack economic substance. Several of the
acquired companies are little more than paper companies.
QPP s largest telematics customer is itself (via subsidiaries
Himex & Ingenie), accounting for 61% of 2013 revenue.
99% & 80% of Himex s 2012 and 2013 balance sheets are
seriously deficient (Himex is QPP s largest acquisition).
Former executives allege Himex/Navseeker lied to them
about its financial state and that in effect they were
operating a Ponzi-style scheme.
2011-2013 accounts receivable are between 86%-231% of
revenue, while deferred revenue only 1%-2% of revenue.
Nearly all of CEO Terry s£11 mm personal investment into
Quiindell was used to build Quindell the country club.
No free cash flow and negative operating cash flow.
Quindell fails to explain how its personal injury business
complies with Lord Jackson s reforms & referral fee ban.
The Chairman of the Transport Select Committee, Louise
Ellman recently initiated a probe to determine whether
ABSs are used to side-step the Jackson reforms.
3 auditors in 3 years, since 2011.
Quindell s shares are worth no more than 3p/share.
QPP shares would qualify for a de-listing if the shares were
trading in US markets.
When asked, Quindell refuses to answer simple questions
about its business.
2013
Net income: £83M
2013
OCF: -£9M
2013
FCF: -£65M
2013
Receivables: £328M
Tangible book: £376M
Price/Tangible Book: 6.4x
FYE: Dec. 31
Auditors: KPMG, RSM
Tenon

INTRODUCTION

GOTHAM CITY RESEARCH first heard about Quindell when the company entered the UK public markets via reverse merger in 2011. Many low quality companies and outright frauds have historically entered the public markets via reverse merger. Quindell s story and its accounting did not make much sense to us at the time, but we did not examine it more carefully until recently. On the one hand, Quindell appears to be an exceptionally good company, with Google/Microsoft-esque net profit margins 1 :

 

2010

2011

2012

2013 AVERAGE

Google

29.0%

25.7%

21.4%

21.6%

24.4%

Microsoft

30.0%

33.1%

23.0%

28.1%

28.6%

Quindell

32.1%

30.3%

23.2%

21.8%

26.9%

On the other hand, QPP appears to be an exceptionally poor company, bleeding cash and issuing shares 2 :

in millions of £s, or units

2010

2011

2012

2013

Revenue

£4.15

£13.71

£137.56

£380.13

Net Profits

£1.33

£4.16

£31.90

£82.70

Free Cash Flow

£0.00

£1.34

-£59.15

-£64.64

Receivables Growth

£1.00

£30.47

£170.67

£125.53

Shares Issued

0.0

2.4

91.0

200.4

Shares Outstanding

108

1,989

3,309

5,670

Gotham City Research has not seen such conflicting qualities in a company since Sino-Forest. We have come to believe that Quindell is, indeed, an exceptional company for all the wrong reasons. We were unable to reconcile 42%-80% of Quindell s EBITDA, and believe the following findings best explain why:

Quindell was little more than a country club (that CEO Robert Terry personally invested £12 million to build) until 2008-2009. The company started reporting exceptional margins and magical revenue growth by 2010/2011, just in time for its public listing. 26%-43% of Quindell s 2009-2011 revenues are of suspect quality as they are explained by sales to related parties owned and operated by Terry himself or his former associates 3 . 80%-99% of Himex s balance sheet Quindell s Telematics crown jewel, and its largest ever acquisition does not add up. Quindell claims that 61% of its 2013 telematics revenue came from itself, via its Himex and Ingenie subsidiaries 4 . 10+ acquisitions appear to lack economic substance. For example, several acquisitions were incorporated the same day they were purportedly acquired. 5 Quindell s New York office does not seem to exist. The receptionist told us he s never heard of Quindell, and that no technology company occupies the 9 th floor. Also, Quindell New York s listed phone number is not a New York phone number (it s a Florida phone number). Quindell claims its legal services/personal injury business is booming due to increased volumes and market share gains, yet Quindell also makes the competing claim that it successfully reduces fraudulent claims (which would reduce volumes). 6

Quindell s Anomalous EBITDA Margins

Quindell s Anomalous EBITDA Margins: Abnormally High Relative to its Peers

Quindell s CEO, Robert Terry imploded his last business (Innovation Group), and started Quindell Limited, as a golf resort/country club. He personally invested £12 million into Quindell the country club (NOT into a software/technology concern, which we discuss in the next section) and Terry (largely) remained in obscurity, until 2011 when he re-entered the public share markets, via a reverse merger transaction on London s AIM exchange (the AIM exchange is similar to the US OTC/Pink Sheets).

Terry would have you believe Quindell s 2013 net profit margins not only compete with the likes of Google/Microsoft, its 2013 EBITDA margins also handily outperform its outsourcing company peers 1 :

Quindell vs. Peers' 2013 EBITDA Margins

Quindell

30.7%

Exlservice Holdings

19.3%

Genpact

18.1%

Accenture

17.3%

WNS Holdings

15.5%

Capita

13.3%

Innovation Group

12.9%

Computer Sciences

11.8%

Xchanging

11.3%

Guidewire Software

7.2%

Serco

5.8%

Guidewire mentions Innovation Group but doesn t mention QPP in their 10K filings as a comparable company.

Quindell s Overall EBITDA Margins Do Not Reconcile with the Sum of its Parts

Although improbable, it s conceivable that Quindell is actually an exceptionally great business, handily outperforming its competitors and earning Google/Microsoft-like profit margins. It s also improbable, but conceivable, that Quindell magically transformed itself overnight from a country club into a highly profitable software/consulting company.

These possibilities seem far less likely, once one compares Ai Claims Solution and Mobile Doctor s razor- thin EBITDA margins against Quindell s overall reported 30+% EBITDA margins. After all, Ai Claims Solution and Mobile Doctors represent nearly 40% of Quindell s 2013 revenue 2 :

Mobile Doctors and Ai Claims Margins are Razor Thin

in millions of £s, except for %s

Revenue

EBITDA

Margin

Mobile Doctors

£27.9

£1.6

5.7%

 

Ai Claims

£117.6

£5.7

4.9%

Mobile Docs + Ai

Claims

£145.5

£7.3

5.0%

Quindell Total

£380.1

£116.5

30.7%

Other Quindell

£234.63

£109.18

46.5%

Yet they have historically generated little more than 4%-6% EBITDA margins. This implies 60% of other Quindell businesses must yield EBITDA margins that substantially exceed Microsoft/Google s margins.

We Cannot Reconcile ~80% of Quindell s 2012 EBITDA

We sought to reconcile Quindell s reported results with the sum of its parts. We were unable to reconcile/explain ~80% of Quindell s reported 2012 EBITDA 3 :

Quindell 2012 Unexplained EBITDA

Acquisition

EBITDA

Ai Claims

£3.8

Mobile Doctors

£1.6

Silverbeck Rymer

£0.6

IT Freedom

£1.8

Compensation Lawyers

£0.1

Business Advisory Service

£0.2

Metaskil Group Limited

-£0.0

Other acquisitions

£0.1

Calculated Total 2012 EBITDA

£8.1

Reported Total 2012 EBITDA

£39.6

Unexplained Variance

-£31.5

% Variance

(79.5%)

Sources: Annual Reports, DueDil, GCR Estimates in millions of £s, except for %s

We are confident that Quindell s core businesses, i.e. Brand extensions and Telecoms do not explain this 80% variance. Quindell s total reported 2011 revenue and EBITDA were ~£14 million and ~£5 million respectively.

As we show later, 30%-40% of these revenues are of questionable quality as they originate from related parties. Assuming this core £14 million in revenue were completely reliable, it would have had to grow year over year by over 4x-8x in 2012 to explain this £32 million variance in EBITDA.

We highly doubt this is the case, especially given the patterns of questionable behavior we ve found in Quindell s brand extensions & telecoms related business, as discussed later in this report.

Similarly, we were unable to reconcile ~42% of Quindell s 2013 EBITDA 4 :

Quindell 2013 Unexplained EBITDA

Acquisition

EBITDA

Compass Cost Consultants

£2.0

React and Recover Medical Group Limited

£2.0

Ai Claims

£5.7

Telematics - Ingenie + Himex + Other

£20.0

Silverbeck Rymer

£6.8

Mobile Doctors

£1.6

Abstract Legal Holdings

£5.1

PT Health

£5.0

Crusader Assistance Group

£0.7

Compensation Lawyers

£0.7

IT Freedom

£2.8

Quintica Holdings Limited

£0.7

Overland Limited

£2.2

ITer8

£4.5

360GlobalNet/Quindell Property Services

£5.0

Other acquisitions

£3.0

Calculated Total 2013 EBITDA

£67.8

Reported Total 2013 EBITDA

£116.5

Unexplained Variance

-£48.7

% Variance

(41.8%)

Sources: Annual Reports, DueDil, GCR Estimates in millions of £s, except for %s

Note that our 2013 assumptions were rather generous to Quindell:

We assumed that Quindell s acquired personal injury law firms and related companies experienced no revenue or margin deterioration, despite the Jackson reforms, referral ban, etc. We do believe Quindell s personal injury related and legal services businesses were not immune to the reforms effects, but again, we are being generous. Quindell and CEO Terry refused to disclose how profitable the £40 million of telematics revenue is; we assume 50% EBITDA margins. In the spirit of generosity, we also assume that revenue quality is not an issue (despite the fact 61% of QPP s telematics revenues originate from its subsidiaries as customers!). The other acquired companies are too small to explain the variance. As described along with the 2012 EBITDA variance, Quindell s Core business does not explain these variances. It would be unsurprising to us if the actual 2013 EBITDA variance was closer to 50%-60%.

Quindell s Balance Sheet Does Not Resemble a True Software/Saas Company s Balance Sheet

We find that not only are Quindell s 2012 & 2013 reported EBITDAs suspect, its balance sheets are suspect as well. Specifically, we find the balance sheets do not resemble a true Software/Cloud/SaaS company s balance sheet.

On one hand, Quindell makes the following SaaSy claims 5 :

Quindell s Balance Sheet Does Not Resemble a True Software/Saas Company s Balance Sheet We find
Quindell s Balance Sheet Does Not Resemble a True Software/Saas Company s Balance Sheet We find

However, Quindell s balance sheet does not support the above claims, as the company s deferred revenue are too low relative to total revenue, to resemble a true cloud/SaaS business 6 :

Deferred Income Too Low for a True SaaS/Cloud Company

in millions of £s, except for %s

2009

2010

2011

2012

2013

Revenue

£3.6

£4.1

£13.7

£137.6

£380.1

Receivables

£0.2

£1.2

£31.7

£177.9

£327.9

as % of revenue

5.7%

28.9%

231.1%

129.3%

86.3%

Deferred income

£0.0

£0.0

£0.4

£2.2

£5.0

as % of revenue

0.0%

0.0%

2.7%

1.6%

1.3%

Moreover, Quindell s cash flow from operating activities was quite negative in 2013, and its receivables were anomalously high. These, too, are not consistent with true Cloud/SaaS companies, as they tend to receive payment upfront (i.e. cash), and then earn their revenue over time. Autonomy plc s balance sheet shared similar qualities, as described by John Hempton of Bronte Capital 7 :

Autonomy s Sales were $870 million. Receiveables were $330 million - which is four and a half months of receiveables. Deferred revenue is $177 million - just over half of receiveables. This is really perverse for a software company. Software companies sell stuff that is barely tangible - they sell it up front and for cash. They have very few receiveables. They do however have an obligation to service that software for a long time after they sell it - so the unearned income is relatively large (usually a multiple of receiveables). Autonomy was booking as income lots of cash it had not received (which is why the receiveables were large) and not booking any obligation to provide future services for that income.

CEO Robert Terry Spent £12 million to Build a Country Club

CEO Rob Terry and his supporters have been claiming (for years) that Terry personally invested £12 million into Quindell s technology/software 1 :

Innovation [Group] was a lossmaking business at the top of the dotcom boom. This time he s [Terry] invested £12m of his own money.

Rob Terry has invested £12m building the consultancy proposition and technology platform.

"Rob Terry set up Quindell with £12 million of his own cash to build an eye-catching insurance claims outsourcing business that could dominate the supply chain with its own IP-technology and a swathe of industry contacts."

CEO Robert Terry Spent £12 million to Build a Country Club CEO Rob Terry and his
CEO Robert Terry Spent £12 million to Build a Country Club CEO Rob Terry and his

Gotham City Research finds that while Terry s claims may be literally true, they are in substance false, for the following reasons:

Terry invested £11.5 million into Quindell Limited between 2001-2005, and Quindell Limited spent £11.5 million on building a golf and country club between 2001-2008. Quindell Limited s principal activity (between 2001-2007, and likely through 2009) was, the operation of corporate entertainment facilities at Quob Park and the operation and development of facilities for Quindell Golf and Country Club There is no mention of software, technology, insurance, personal injury, or telematics in Quindell Limited s annual reports between 2001-2007. Quindell Limited s 2008 annual report vaguely starts claiming that its principal activities include telecom/technology related activities, even though archived versions of its website do not validate these claims.

It is evident that the financial media, brokerage analysts, and investors give their vote of confidence to CEO Robert Terry, in part, because they trusted that he had personally invested £12 million to build an insurance/software/technology concern. Their faith in Quindell and its CEO Terry is misplaced.

Quindell Limited s Annual Reports Clearly Show Terry Invested in Building a Country Club

Quindell Limited s Notes to the Accounts (specifically the Tangible Fixed Assets section) from 2001- 2008 clearly show that Quindell cumulatively invested £11.6 million in additions to Tangible Fixed Assets (mostly Freehold land and buildings ), not Research and Development, not Software, and nothing Technology-related 2 :

CEO Robert Terry's ~12 million Investment into Building Quindell the Country Club in millions of £s,
CEO Robert Terry's ~12 million Investment into Building Quindell the Country Club
in millions of £s, except for %s
Rob Terry Total Invested Capital
2001
2002
2003
2004
2005
2006
2007
2008
£3.6
£5.4
£6.7
£10.9
£11.5
£11.5
£11.5
£11.5
Terry's Incremental Investment
Additions to Freehold land & buildings, etc.
£1.8
£1.3
£4.2
£0.6
£0.0
£0.0
£0.0
£4.2
£1.5
£1.1
£1.9
£0.3
£0.7
£0.7
£1.3
Cumulative Investment in land, etc.
£5.6
£6.7
£8.6
£8.9
£9.6
£10.3
£11.6

Quindell Began as a Country Club and Remained One Until Relatively Recently

Quindell Limited was a country club / golf course from its inception through 2008/2009, as evidenced also by how the company describes itself in its annual reports under Principal Activity : 3

Year:

Principal Activity (as described in each respective Annual Report)

2001

The company's principal activity is the operation of corporate entertainment facilities.

2002

The company's principal activity is the operation of corporate entertainment facilities.

2003

The company's principal activity is the operation of corporate entertainment facilities and a golf course.

2004

The company's principal activity is the operation of corporate entertainment facilities at Quob Park and the operation and development of facilities for Quindell Golf and Country Club.

2005

The company's principal activity is the operation and development of facilities for Quindell Golf and Country Club and the operation of corporate entertainment services at Quob Park. In addition, based from Quob Park, the Compoany has continued to leverage the experience and investment strategy of its Board to generate other mgmt services income, with focus on the leisure industry or technology companies with the potential for future public listings.

2006

The company's principal activity during 2006 has continued to be the operation and development of freehold facilities owned by Quindell for the Leisure Industry.

2007

The company's principal activity during 2006 has continued to be the operation and development of freehold facilities owned by Quindell for the Leisure Industry.

2008

The company's principal activity during 2008 have continued to be within both the leisure industry, where activities relate to providing solutions to both consumers lifestyle solutions and businesses business solutions, and within telecommunications and technology led industries.

Quindell Limited s description of its principal activity noticeably changes in 2008 (recall that Quindell conveniently discontinued filing its annual reports after 2005, & only submitted its 2006 and 2007 filings in 2009 when it was threatened with discharge). It s only in 2008 s annual report Quindell starts using vague and superficial business-speak, such as consumer lifestyle solutions and business solutions .

The 2008 annual report was not signed off until March 2010. Coupled with Quindell s bizarre related party transactions with ClickUs2.com, SMI Telecoms, and others between 2009-2011 (as we describe in the next two sections), we believe Rob Terry had plenty of means and motivation to exaggerate

Quindell s business activities between 2008-2011 leading up to its public listing. We think there s a good chance Quindell remained little more than a country club through 2010/2011.

Archived Records of Quindell s Website Verify It was a Country Club

As they say, sometimes pictures are worth a thousand words:

Quindell.com on December 11, 2004 4

Archived Records of Quindell s Website Verify It was a Country Club As they say, sometimes

Quindell.com on January 31, 2008 and July 8 th , 2008

Archived Records of Quindell s Website Verify It was a Country Club As they say, sometimes

Notice how the 2008 archived versions of Quindell s website shown above are not consistent with Quindell s portrayal of the business in the 2008 Annual Report (filed in 2010; this is no coincidence).

Quindell.com on March 12th, 2009

Quindell.com on March 12th, 2009 July 15, 2009 Page 13 of 74

July 15, 2009

Quindell.com on March 12th, 2009 July 15, 2009 Page 13 of 74

December 16, 2009

December 16, 2009 By December 2009, Quindell s website at least resembles the principle activities as

By December 2009, Quindell s website at least resembles the principle activities as described in the company s 2008 annual report. Notice how there is no mention of insurance, and that the Quindell Telecoms and Technology Solutions as described (if you hover over them) sounds like nothing more than the SMI Technologies / SMI Telecom s business (which implies Quindell itself had little to no telecoms operations; more on this later). The Business Solutions sounds vague & low-tech:

December 16, 2009 By December 2009, Quindell s website at least resembles the principle activities as
December 16, 2009 By December 2009, Quindell s website at least resembles the principle activities as
`
`

Quindell s 2008 Annual Report Signed Off By Louise Terry (Robert Terry s Spouse), Finance Director 5

Quindell s 2008 Annual Report Signed Off By Louise Terry (Robert Terry s Spouse), Finance Director
Quindell s 2008 Annual Report Signed Off By Louise Terry (Robert Terry s Spouse), Finance Director
Quindell s 2008 Annual Report Signed Off By Louise Terry (Robert Terry s Spouse), Finance Director

So CEO Robert Terry had his wife, Louise Tracey Terry, Quindell s Finance Director sign off on Quindell s 2008 filings on 24 March 2010, just a year before filing to go public? It turns out, this is merely a symptom of far more peculiar and funny activities that occurred between 2009-2011.

Quindell s Largest 2009/2010 Customer is Itself (ClickUs4.com)

Quindell s Largest Customer in 2009 and 2010 was Itself (via ClickUs4.com)

In the 2 years preceding Robert Terry s return to the public markets as CEO of Quindell, Quindell recognized ClickUs4.com, an entity owned by Robert Terry (and his relatives), as its largest customer 1 :

ClickUs4.com was Quindell's Largest Customer in 2009 - 2010 in millions of £s, except for %s
ClickUs4.com was Quindell's Largest Customer in 2009 - 2010
in millions of £s, except for %s
Quindell Total Revenue
Revenue from ClickUs4
2006
2007
2008
2009
2010
£1.09
£1.38
£1.71
£3.55
£4.15
£1.53
£1.07
as % of Quindell Revenue
43.2%
25.9%
Clickus4.com Revenue
£0.27
£0.14
£0.00
£2.62
£1.76

We question the economic substance of these revenues for the following reasons:

Clickus4.com magically increased its sales from £0.0 million to £2.6 million, between 2008 and 2009, despite the fact that Clickus4.com revenue never exceeded £0.3 million prior to 2009. 26%-43% of Quindell s 2009-2010 revenue come from ClickUs4.com. The economic merit of these sales is questionable, as Robert Terry and family own and/or controls both entities. ClickUs4.com (and Quindell s) phenomenal revenue growth in 2009 coincides with the time period in which Quindell and Clickus4 stopped filing annual reports. Quindell s 2009 annual report was filed on May 31, 2011, just in time for its public listing. Quindell and its CEO Robert Terry purchase/sell Clickus4.com with each other, several times, between 2008-2010. These transactions seem to lack economic substance, as Terry is the ultimate owner of both entities. Quindell s average monthly number of employees actually declined from 46 employees to 34 employees between 2008 and 2009, even as Quindell s revenue more than doubled. In order to stave dissolution, Robert Terry filed Quindell s 2006 and 2007 s filings in 2009. That is, between 2006 and 2009 did not files its financial statements. The Board of Quindell Limited found evidence of theft of stock and fraud in 2010. Clickus4.com s website re-directs to Quindell.com today. ClickUs4.com s auditor in 2008 differs from that in 2010 (Deloitte in 2008 and then CJ Goodhead in 2010).

Robert Terry Enjoys His Country Club Life, Stops Filing Financial Statements for Quindell

After Robert Terry fell from grace at Innovation Group (which incidentally was a roll-up as well) in 2003, it seems he devoted most of his time to running a golf and country club (a.k.a. Quindell Limited), along with a restaurant/wine bar, as explained in the prior section. For reasons unknown, Quindell Limited ceased filing financial statements after 2005.

Quindell Limited was to be dissolved in 2009, for failing to produce financial statements since 2005 2 :

Quindell Limited was to be dissolved in 2009, for failing to produce financial statements since 2005

In order to prevent dissolution, Robert Terry filed Quindell s 2006 and 2007 s filings in 2009. Said differently, Quindell was not filing its financial statements between 2006 and 2009 3 :

Quindell Limited - Late Filings

 

2006

2007

2008

2009

2010

Year End: 12/30/2006 12/30/2007 12/30/2008 12/30/2009

12/30/2010

Auditor Signed off:

4/30/2009

4/30/2009

3/24/2010

2/28/2011

3/11/2011

Days after Year End:

852

487

449

425

71

We are concerned that the accuracy and reliability of Quindell s financial statements are (at best) questionable during this time period, as they were signed off much later.

Quindell Limited s 2009 annual report provides a reasonably long description of its activities, yet there is no mention of insurance or insurance software . In fact, the language is laughably vague 4 :

Quindell Limited was to be dissolved in 2009, for failing to produce financial statements since 2005

Quindell, Robert Terry, and ClickUs.com History of Ownership: This is Quindell s Largest Customer?

Seeing that Robert Terry (and/or his wife and family members) own/control ClickUs4.com, and Robert Terry owns Quindell, it seems strange that ownership of Clickus4.com exchanged hands at least a few times. These transactions seem to lack economic merit:

June 30 th 2005 Clickus4.com 100% owned by Quindell Limited 5

Quindell, Robert Terry, and ClickUs.com History of Ownership: This is Quindell s Largest Customer? Seeing that

February 28 th , 2009 Quindell Limited sold 100% of ClickUs4.com to Robert Terry

  July 29 th , 2009 Quindell Limited purchased ~50% of ClickUs4.com shares from Terry
July 29 th , 2009 Quindell Limited purchased ~50% of ClickUs4.com shares from Terry
November 31 st , 2009 Quindell acquired the remaining shares of ClickUs4.com

According to Quindell s 2009 Annual Report,

ClickUs4.com was acquired for £3.6 million. Quindell paid for this by transferring assets to ClickUs4 and settling an intercompany loan. On the 30 th of December 2009, Quindell s wrote off its ClickUs4.com investment and wrote off an addition £0.32 million it contributed to ClickUs4.com. On July 1 st , 2010 Quindell sold ClickUs4.com to Robert Terry for £188,695.

Quindell Board Found Evidence of Theft of Stock and Fraud Gotham City Research does not understand this claim in the Quindell prospectus 6 :

Quindell, Robert Terry, and ClickUs.com History of Ownership: This is Quindell s Largest Customer? Seeing that

How can the Board of Quindell Limited (that is, Robert Terry and the Terry Clan) find evidence of theft of stock and fraud in ClickUs4.com, which too is a Terry business?

ClickUs4.com sAuditor in 2008 differs from that in 2010 ClickUs4.com s 2008 auditor 7 :

ClickUs4.com sAuditor in 2008 differs from that in 2010 ClickUs4.com s 2008 auditor : ClickUs4.com s

ClickUs4.com s 2010 auditor (maybe Deloitte was having difficulty believing Quindell s 2009 revenue, and did not want to sign the 2010 s):

ClickUs4.com sAuditor in 2008 differs from that in 2010 ClickUs4.com s 2008 auditor : ClickUs4.com s

Quindell s average monthly number of employees materially declined in 2009, even though reported revenue doubled 8 :

Quindell s average monthly number of employees materially declined in 2009, even though reported revenue doubled

Clickus4.com s CEO is Robert Terry s Lackey A young man name Rod Cameron was named CEO of ClickUs4.com on the 1 st of April 2011, 9

Quindell s average monthly number of employees materially declined in 2009, even though reported revenue doubled

Rod Cameron is currently Robert Terry s personal executive assistant. 10

Quindell s average monthly number of employees materially declined in 2009, even though reported revenue doubled

Strangely, the archived version of Clickus4.com for November 5 th , 2007 (as does the December 2 nd , 2008 version) shows Quindell 11 :

Strangely, the archived version of Clickus4.com for November 5 , 2007 (as does the December 2

The archived version of Clickus4.com as of July 8 th , 2009 shows the following (just time for Quindell to sell goods and services to clickus4.com) 12 :

Strangely, the archived version of Clickus4.com for November 5 , 2007 (as does the December 2

41% of 2011 Revenues Comes from an Undisclosed Customer

Quindell s 2011 Reported Figures Look Exceptionally Good What was Quindell s Secret Recipe?

Quindell was little more than a country club/golf club through 2008/2009, and a large percentage of its 2009/2010 sales came from itself (via Terry-controlled ClickUs4.com). Despite a huge reported loss in 2009, the company began magically generating Google/Microsoft-like margins along with triple digit revenue growth in 2010 and 2011 1 :

 

2010

2011

2012

2013 AVERAGE

Google

29.0%

25.7%

21.4%

21.6%

24.4%

Microsoft

30.0%

33.1%

23.0%

28.1%

28.6%

Quindell

32.1%

30.3%

23.2%

21.8%

26.9%

Gotham City Research does not see signs of excellence or competitive advantage in Quindell s 2010/2011 business or service/product offerings. Rather, we see that Quindell s relationship with SMI Telecom (customer/distribution partner/subsidiary) in 2010-2012 eerily resembles its relationship with ClickUs4.com in 2009/2010. 40%+ of Quindell s 2011 revenues seem questionable, as:

Quindell slargest 2011 customer/distribution partner = 41% of QPP stotal revenue. This entity is unnamed (deliberately, we think), but the evidence points to SMI Telecoms. Quindell owned SMI Telecoms in 2011; strangely Quindell owned it in 2010 as well, under a different name (i.e. Quindell issued shares in 2010, sold its interests, and then bought again via shares in 2011). Phil Brooks was concurrently CEO of SMI Telecoms &a C-level executive of Quindell in 2011. Phil Brooks reminds us of Fumitake Nishi of Tile Shop (for those familiar with our Tile Shop report). Phil Brooks has deep-rooted ties to CEO Terry, Richard King, and the Innovation Group clan. Phil Brooks Turing SMI liquidated in 2008; Turing was only marginally profitable in 2006 & 2007. Quindell New York and Quindell India contact information as of today (address, phone number) are identical to SMI Telecom s New York and India contact information from 2011. Just as it did with ClickUs4.com in 2009-2010, questionable exchanges of ownership/acquisition correspond with Quindell recognizing anomalous revenue growth derived from the acquired/sold entity.

Why ClickUs4.com and SMI Telecoms Matter Today

Recall that Gotham City Research is unable to reconcile Quindell s 2012 and 2013 EBITDA with the sum of the subsidiary parts. We think the primary reason is that Quindell s core business (before acquiring all the personal injury/legal entities) was never quite what Terry and Quindell portrayed it to be.

Our ClickUs4.com and SMI Telecoms findings lead us to believe that Quindell s 2009-2012 reported revenues are highly questionable. In fact, we believe SMI Telecoms plays a critical role in understanding why we are unable to reconcile ~80% of Quindell s 2012 EBITDA.

Quindell s Largest Unnamed Customer/Distributor in 2011 is SMI Telecoms Quindell cryptically mentions its largest customer and distribution partner in 2011 2 :

Quindell s Largest Unnamed Customer/Distributor in 2011 is SMI Telecoms Quindell cryptically mentions its largest customer

Quindell does not name this entity, but all the evidence points to SMI Telecoms (which it owned) It is the only distribution entity mentioned in the entire 2011 annual report:

Quindell s Largest Unnamed Customer/Distributor in 2011 is SMI Telecoms Quindell cryptically mentions its largest customer
Quindell s Largest Unnamed Customer/Distributor in 2011 is SMI Telecoms Quindell cryptically mentions its largest customer

Quindell Briefly Owned SMI Telecoms in 2010 when it Was Known As SMI Technologies 3

Quindell s Largest Unnamed Customer/Distributor in 2011 is SMI Telecoms Quindell cryptically mentions its largest customer

SMI Technologies operated briefly under the name Quindell Enterprise Solutions, while under the brief ownership of Quindell. After it was sold, the company was renamed to SMI Telecoms on April 1 st 2011 4 :

SMI Technologies LLC and SMI Technologies Limited are no longer trading as Quindell Enterprise Solutions, rather they have been rebranded and are now trading as SMI Telecoms. As part of the rebranding these two legal entities are being renamed as SMI Telecoms LLC and SMI Telecoms Limited respectively.

In Late 2011, Quindell Re-Acquired SMI Telecoms

After buying and then selling SMI in 2010, Quindell bought it back yet again in 2011. This pattern of behavior bears an eerie resemblance to the ClickUs4.com behaviors we outlined a few pages ago 5 :

Quindell and SMI Telecoms Concurrent India Claims SMI Telecoms website (via the wayback machine archives of the site) lists an India office in 2011 6 :

Quindell and SMI Telecoms Concurrent India Claims SMI Telecoms website (via the wayback machine archives of

Quindell s 2011 annual report states 7 :

Quindell and SMI Telecoms Concurrent India Claims SMI Telecoms website (via the wayback machine archives of

The manner in which Quindell phrases its India presence further supports our belief that SMI Telecoms is the largest customer/distribution partner.

Quindell Extends Ties with SMI Telecoms in 2012, Increasing its Stake

According to Quindell s 2012 Annual Report (signed off on 7 May 2013), Quindell and SMI Telecom s relationship strengthen in May 2012 8 :

Quindell and SMI Telecoms Concurrent India Claims SMI Telecoms website (via the wayback machine archives of

Concurrently, Quindell s largest 2012 customer/distribution partner continues to be the same unnamed entity as in 2011:

Quindell and SMI Telecoms Concurrent India Claims SMI Telecoms website (via the wayback machine archives of

No other distribution entities are named in the 2012 annual report.

SMI Telecoms is Never Ever Mentioned Again

We are unable to find SMI-related press release, RNS, etc. after the news that Quinded extended ties with SMI Telecoms. In fact, the SMI Telecoms website redirects to Quindell as of April 2013, a month before Quindell s 2012 Annual Report was signed off (the wayback machine has no record of the SMI website between December 1, 2012 and April 10, 2013) 9 :

SMI Telecoms is Never Ever Mentioned Again We are unable to find SMI-related press release, RNS,

We find this highly strange for the following reasons:

   Quindell does not explain whatever happened to SMI Telecoms. We are not told
Quindell does not explain whatever happened to SMI Telecoms. We are not told whether it was
disposed or whether the remaining shares were purchased.
SMI Telecoms website seems lacking in updates after this good news.
Quindell and SMI had a track record of updating the public on latest developments in their
relationships.
The last announcement regarding the extension of their partnership sounds very bullish.
Quindell and CEO Terry have a demonstrated track record of promoting and milking good
news (and even mediocre news). Why stay silent?
If SMI Telecoms and/or Quindell s Telecom s business revenue is growing 5x-10x, and its
EBITDA margins are 50%-100%, why does Quindell remain quiet about one of its best (if not its
best) businesses?

SMI Telecoms LLC Was Dissolved 3 Months After the Release of Quindell s 2012 Annual Report

Quindell s 2012 Annual Report was signed off on 7 May 2013, and publicly released on the 7 th of June 2013 10 :

SMI Telecoms is Never Ever Mentioned Again We are unable to find SMI-related press release, RNS,

According to Florida records, SMI Telecoms LLC was dissolved on the 27 th of September, 2013 11 :

Failure to file an annual report by the 3rd Friday of September will result in

Failure to file an annual report by the 3rd Friday of September will result in the administrative dissolution or revocation of the business entity on our records at the close of business on the 4th Friday of September. 12

SMI Telecoms LLC s listed registered agent is listed as Phil Brooks, which is odd, because a registered agent must be a Florida resident. It sunclear how Brooks was a Florida resident while simultaneously a Quindell executive in 2011.

SMI Telecoms Ltd Stops Filing Annual Reports, Will be Dissolved in 3 Months

SMI Telecoms LLC s UK counterpart, SMI Telecoms Ltd (which is fully owned SMI Telecoms LLC) will be dissolved in 3 months according to an April 8 th 2014 filing 13 :

Failure to file an annual report by the 3rd Friday of September will result in

The Strange Case of SMI Telecoms Distribution Ltd, Incorporated by Robert Terry

SMI Telecoms Distribution Limited was incorporated on 8 th of March 2012 (just 2 months before the announcement that SMI Telecoms and Quindell extended its partnership agreement): 14

The Strange Case of SMI Telecoms Distribution Ltd, Incorporated by Robert Terry SMI Telecoms Distribution Limited

it s unclear why SMI Telecoms Distribution Ltd was ever incorporated:

Robert Terry and Laurence Moorse are listed as directors. As of incorporation, Quindell Limited is the sole shareholder. As of March 2014, Quindell Technologies Limited is listed as the sole shareholder. The company has never filed an annual report and looks like it will be dissolved soon per Companies House.

Phil Brooks Was a C-Level Executive of Both Quindell and SMI Telecoms in 2011

Quindell s prospectus (dated April 2011) states Philip Brooks is Quindell s Chief Revenue Officer (and more) and a shareholder 15 :

The Strange Case of SMI Telecoms Distribution Ltd, Incorporated by Robert Terry SMI Telecoms Distribution Limited

Various press releases, archived versions of the SMI Telecoms website, and other documents prove Phil Brooks was CEO of SMI Telecoms at the same time 16 :

"NetBoss monitors networks, and when they find something that's not working, they call us," Phil Brooks, chief executive officer of SMI, said Tuesday $169K grant could help SMI Telecoms add jobs in Indian River County dated July 5 th , 2011

Phil Brooks does not mention SMI Telecoms/SMI Technologies in his Linked profile 17

Phil Brooks does not mention SMI Telecoms/SMI Technologies in his Linked profile Phil Brooks Remains with

Phil Brooks Remains with Quindell Today, Though His Exact Role and SMI Telecoms Fate is Ambiguous

Phil Brooks, as evidenced by his Linkedin profile, as well as Quindell s press releases/RNS, appears to remain with Quindell. The problem is it is very unclear what he does exactly 18 :

 

Phil Brooks, Chief Executive of Quindell Telecoms according to a Quindell press release dated November 18 th , 2013

 

Vs.

 

Chief of Quindell Solutions - according to a Quindell press release dated October 23 rd , 2013 (see the next section for more on Quindell Solutions, as it is a phantom acquisition)

Phil Brooks and Ties That Blind the Turing SMI Connection

Phil Brooks, Gary Brooks (Phil and Gary appear to be family members), Richard King (CEO of Quindell subsidiary Ingenie, and former Innovation Group senior member), Quindell Limited (and therefore Robert Terry), Laurence Moorse (Quindell s CFO) were all directors of Turing SMI 19 :

Phil Brooks does not mention SMI Telecoms/SMI Technologies in his Linked profile Phil Brooks Remains with

Gary Brooks signed off on some of the SMI financial statements, and he lists himself as CTO of SMI Telecoms on linkedin currently: 20

Gary Brooks signed off on some of the SMI financial statements, and he lists himself as

SMI Telecom s Listed New York & India Offices are Quindell s Listed New York & India Offices Today

Quindell s current New York and India office information, as listed in the contacts section of the quindell website, are the exact same as SMI Telecom s in 2011. We contacted and visited the New York offices and the office receptionist told us he s never heard of a Quindell (more on this later).

Quindell s Phantom Acquisitions (2011-Present)

We find Quindell engaging in further questionable, uneconomic behavior with the following subsidiaries:

QUINDELL'S PECULIAR ACQUISITIONS

SUBSIDIARY NAME

DESCRIPTION

Brand Extension (UK) Limited

Incorporated same day Quindell claimed to acquire. 100% owned by Mark Ford 7 months later.

Quindell Brand Extension Services Limited

Quindell lists as subsidiary, but it is also 100% owned by Mark Ford.

UK Sun Limited

Only had £100 in total assets, and was given notice it would be dissolved 2 months after Quindell acquired it.

Simon Hall Associates Limited

Richard Oliver Incorporated 1 month before Quindell claimed to acquire. Only has £1 in total assets.

Quindell Enterprise Solutions Limited

Incorporated same day Quindell claimed to acquire, with Matt Whiting as sole shareholder.

Quintica Holdings Limited

Quindell claimed to have acquired it, but already owned it.

Quindell Property Services

Quindell already fully owned it from incorporation a few months before it claimed to have acquired it.

ACH Manchester and associated companies

According to Companies House there is not, and has never been, a UK company called ACH Manchester.

Clickus4.com

QPP subsidiary (& owned by Terry) & 30-35% customer. Allegations of fraud. See ClickUs4.com section for more.

SMI Telecoms Distribution LLC

QPP subsidiary (& owned by a Quindell executive), simultaneously largest 2011 Quindell customer. See SMI section.

Quindell Solutions Limited

It seems like Terry used this vehicle to move cash from Quindell to himself (Quob Park, which he owns). An undisclosed related party transaction.

We saw the following pattern at work with ClickUs4.com and SMI Telecoms:

Acquiring companies & utilizing them as significant customers. Quindell s recorded revenue from these transactions appear to lack economic substance &a reasonable arm s-length process

In this section, we cover companies that exhibit the following 2 behavioral patterns:

Purchasing of companies that lack economic substance from related parties. The companies do not appear genuine (nominal assets, incorporated same day of acquisition, etc).

Acquiring companies Quindell already fully-owned. Quindell s Brand Extension , Quindell s Core Businesses Look Odd

We were informed that when an investor recently asked CEO Terry and management for a breakdown of its revenue, the company refused 1 . They pointed instead to the split provided in a Cenkos note. According to the Cenkos note, Quindell s Brand Extension related businesses are highly profitable (QPP apparently claimed this were utility-like services) 2 :

Quindell Brand Extension Economics, According to Cenkos

in millions of £s, except for %s

2011

2012

2013

Brand Extension / Broking

£6.8

£11.1

£12.9

QPP Brand Extension

£6.5

£18.5

£20.0

Total Brand Extension Revenue

£13.3

£29.6

£32.9

Brand Extension / Broking

£5.9

£8.5

£11.0

Total Brand Extension EBITDA

£2.2

£8.0

£8.6

Total Brand Extension EBITDA

£8.1

£16.5

£19.6

Brand Extension / Broking

86.8%

76.6%

85.3%

Total Brand Extension EBITDA

33.8%

43.2%

43.0%

Total Brand Extension EBITDA Margin

60.9%

55.7%

59.6%

It s quite convenient that a company that was mostly a country club and golf club through 2008/2009, and derived 25%-50% of revenues from its subsidiaries in 2009-2011, magically reports Microsoft/Google-like profit margins just in time for its 2011 IPO. It s equally convenient that some of these profits are derived from a highly vague brand extensions business, that Quindell never explains. We think we know why.

Quindell Brand Extension Services Limited

There is a company listed at Companies House, by the name of Quindell Brand Extension Services, listed as a subsidiary of Quindell in its 2012 annual report 3 :

Quindell Brand Extension Services Limited There is a company listed at Companies House, by the name

The problem is that Quindell Brand Extension Services is wholly owned by Mark Ford, not Quindell 4 .

Quindell Brand Extension Services Limited There is a company listed at Companies House, by the name

Who is Mark Ford?

Mark Ford's business, TMC (Southern) Limited owned 7.4% of Quindell when it publicly listed on the AIM exchange. Strangely, Mark Ford s TMC (Southern) Limited disclosed a short position of 0.7% on November 25th, 2011 5 . In addition, TMC did business with Quindell. The following is a series of non-cash and other transaction between the two entities as disclosed in Quindell s Prospectus 6 :

Quindell Brand Extension Services Limited There is a company listed at Companies House, by the name
Quindell Brand Extension Services Limited There is a company listed at Companies House, by the name
Quindell Brand Extension Services Limited There is a company listed at Companies House, by the name

Brand Extension (UK) Limited

Not to be confused with Quindell Brand Extension Services Limited, there is also a company called Brand Extension (UK) Limited that QPP claimed to acquire in 2012 7 :

Brand Extension (UK) Limited Not to be confused with Quindell Brand Extension Services Limited, there is

As a matter of fact, Quindell did not. Mark Ford incorporated the business that same day 8

Brand Extension (UK) Limited Not to be confused with Quindell Brand Extension Services Limited, there is

As of April 2013, Mark Ford remained the sole owner of Brand Extension (UK) Limited 9 :

Brand Extension (UK) Limited Not to be confused with Quindell Brand Extension Services Limited, there is

Is This What Quindell Means When it Refers to Brand Extension ? 10

Brand Extension (UK) Limited Not to be confused with Quindell Brand Extension Services Limited, there is

The above image would additionally explain why the company is opaque when it comes to describing brand extensions and why it refuses to provide meaningful disclosures of the different businesses it owns and operates. The numbers simply do not add up.

Quindell Solutions Limited

Quindell claims to have acquired Quindell Solutions Limited ( QSL ) sometime in September 2011. Quindell s 2011 Annual Report and a QSL filing/Companies House disagree on the exact date 11 :

The above image would additionally explain why the company is opaque when it comes to describing
The above image would additionally explain why the company is opaque when it comes to describing

Here s the thing: QSL was once a subsidiary of Quindell Limited, before Quindell Limited reverse merged into Mission Capital.

QSL looks like it was nothing more than a shell company. Its filings show that QSL had negligible assets in 2009 and 2010 (actually a negative book value). In 2010, revenue, costs and cashflow were all zero. 12

Quindell sold QSL to CEO Rob Terry in 2009 for £1 (coincidentally, QSL s book value).

In 2011 Quindell re-acquired QSL for £251,000 in cash. At the time QSL was fully owned by Quob Park Limited, an entity wholly-owned by Rob Terry 13 :

In short, Quindell appears to have made an undisclosed payment to CEO Rob Terry in the

In short, Quindell appears to have made an undisclosed payment to CEO Rob Terry in the amount of £251,000 for a shell company that Quindell had sold to the same Rob Terry 2.5 years prior for £1. Despite all this, the transaction was not disclosed as a related party transaction.

Matt Whiting (who we discuss in greater detail shortly) is listed as a director of 2012 14 :

In short, Quindell appears to have made an undisclosed payment to CEO Rob Terry in the

Phil Brooks and Quindell Solutions Note that a RNS/press release dated 23 October 2013 states 15 :

Phil Brooks, Chief Executive of Quindell Solutions said: "This contract reinforces Quindell's market leading approaches and solution offerings to enhance service management capabilities across a range of industries."

Simon Hall Associates

Simon Hall Associates ( SHA ) appears to be yet another shell company. SHA was incorporated on April 26 th 2012(~2 weeks before Quindell claimed to acquire it) with 1 share and £1 in capital. Quindell s 2012 Annual Report shows QPP paid £1 million cash for SHA 16 :

Simon Hall Associates Simon Hall Associates ( SHA ) appears to be yet another shell company.

Simon Hall Associates 2012 balance sheet shows only £1 in total assets, with no trace of the £1,000,000 invested in it (supposedly) on May 11:

Simon Hall Associates Simon Hall Associates ( SHA ) appears to be yet another shell company.

The plot thickens further, as Quindell s press release announcing the SHA acquisition on 14.5.12 claims a targeted profit after tax of £500,000 , despite the fact we find Simon Hall has no apparent operations and was incorporated few weeks before it was acquired 17 :

The Group also announces today that Simon Hall Associates Limited has been acquired via a

newly incorporated entity, Quindell Motor Services Limited ("QMS") by the Group at a valuation of up to £2.5 million to be satisfied by the initial issue of 10,000,000 Quindell Shares ("New

Shares"), and up to a further 15,000,000 Quindell Shares ("Further Shares").

This valuation has
This valuation has

been calculated on a multiple of five times QMS's targeted profit after tax of £500,000 ("Target

Profit") within a continuous twelve month period ending prior to 31 December 2013 ("Target

Profit Period").
Profit Period").

The New Shares will be issued prior to the start of the Target Profit Period and

the Further Shares may be issued over the next nine months and used to acquire the businesses

of other industry leading talent, not currently working with the Group, in order to assist in meeting this Target Profit.

The New Shares will be issued at a price of 10 pence per share, representing a premium of circa 45% on yesterday's closing price. The shares are subject to lock in of between 12 and 36 months from the date of issue. In the event that QMS misses its Target Profit, the Group will receive compensation from the vendors in the form of cash equal to 5x the shortfall.

Who is Richard Oliver?

Richard Oliver s ties to Quindell and CEO Robert Terry appear to be very long and deep (Innovation Group, Lava Group), per Linkedin 18 :

Profit") within a continuous twelve month period ending prior to 31 December 2013 ("Target Profit Period").

It gets stranger. The author of Quindell s 2011 and 2012 Annual Reports is shown as Richard Oliver 19 :

Profit") within a continuous twelve month period ending prior to 31 December 2013 ("Target Profit Period").

UK Sun Limited Quindell claimed to have acquired UK Sun Limited (and issued it shares) on December 2 nd , 2011 20 :

UK Sun Limited Quindell claimed to have acquired UK Sun Limited (and issued it shares) on

Yet the company was warned it would be dissolved just ~2 months later 21 :

UK Sun Limited Quindell claimed to have acquired UK Sun Limited (and issued it shares) on

UK Sun Limited does not look like a genuine company, in substance, with only £100 in total assets (no trace of proceeds from Quindell shares issued to it) 22 :

UK Sun Limited Quindell claimed to have acquired UK Sun Limited (and issued it shares) on

Quindell Enterprise Solutions Limited

On 13 October 2011 Quindell claims it paid £750,000 in cash for Quindell Enterprise Solutions Limited ( QESL ) 23 :

Quindell Enterprise Solutions Limited On 13 October 2011 Quindell claims it paid £750,000 in cash for

Companies House shows QESL was incorporated that same day (Matt Whiting as the sole shareholder) 24 :

Quindell Enterprise Solutions Limited On 13 October 2011 Quindell claims it paid £750,000 in cash for

It gets stranger, as there s no trace of the £750,000 in cash Quindell supposedly paid it 25 :

Quindell Enterprise Solutions Limited On 13 October 2011 Quindell claims it paid £750,000 in cash for

About Matt Whiting and LearnED Matt Whiting s ties to Quindell run far deeper than the QESL acquisition detailed in the prior page 26 :

In February 1996, he joined SCS Consulting Limited as Chief Technology Officer (Rob Terry founds Consulting in 1990). In April 1999, he joined New Planet Solutions ("NPS") where his role involved delivering insurance solutions to customers of The Innovation Group. NPS was apparently founded by Hassan Sadiq, CEO of Himex (more on Sadiq later). Matt joined Robert Terry s The Innovation Group in November 1999 as Chief Technology Officer, and was appointed to the Board in July 2000. Matt left The Innovation Group in 2002 at which time he was one of four global technology officers reporting to Robert Terry the then Chairman and Chief Executive. In 2002, Matt founded LearnED Limited and was appointed Chief Executive. LearnEd was formed to develop and resell Business Process Management technologies with an initial focus on the insurance industry.

Quindell Fully Acquires LearnEd in July 2011, only to dispose of it a Few Months Later at a Profit

Quindell s 2011 annual report claims the company fully acquired LearnED in July (Matt Whiting was appointed Quindell s Chief Technology Officer in April 2011), but it also discloses that LearnED was sold three months later on 30th September 2011, for £500,000, having acquired and transferred selected assets and business activities from the company at an arms length value 27 :

About Matt Whiting and LearnED Matt Whiting s ties to Quindell run far deeper than the

The economic substance of the Quindell/LearnED transactions is unclear, as Quindell recognized a gain on its disposal of LearnED according to Quindell s 2011 Annual Report:

The economic substance of the Quindell/LearnED transactions is unclear, as Quindell recognized a gain on its

Other Strange Quindell/LearnED Activity

Quindell lent LearnED £972,000 which was covered by a fixed and floating charge over all LearnED s assets and Intellectual Property Rights. We were unable to verify that LearnED paid Quindell back pre acquisition. 28 The Directors believe that the combination of Intellectual Property Rights held in the two companies will allow for a significant increase in activity for Quindell in the Insurance sector in 2011 and beyond. Quindell recognized revenues from LearnED in 2011

The economic substance of the Quindell/LearnED transactions is unclear, as Quindell recognized a gain on its

Quindell Property Services

The Company claims to have acquired Quindell Property Services on the 3 rd of May 2013 but they had already fully owned it at incorporation a few months earlier 29 :

Quindell Property Services The Company claims to have acquired Quindell Property Services on the 3 of
Quindell Property Services The Company claims to have acquired Quindell Property Services on the 3 of

Contrasted against Quindell s claims in its 2013 press release and 2013 PRE:

Quindell Property Services The Company claims to have acquired Quindell Property Services on the 3 of

The consideration for the acquisition, which was announced on 3rd May 2013, comprised an immediate issue of 65,978,572 new shares and provided for up to 190,000,000 further consideration shares to be issued related to performance during 2013-2015.

Quintica Holdings Limited Quindell claims to have acquired Quintica Holdings Limited on the 18 th of September, 2012 30 :

Quintica Holdings Limited Quindell claims to have acquired Quintica Holdings Limited on the 18 of September,

Quindell already owned Quintica Holdings Limited at incorporation (both 2012 and 2013pre filings make clear that Quintica Holdings Limited is the entity acquired) 31 :

Quintica Holdings Limited Quindell claims to have acquired Quintica Holdings Limited on the 18 of September,
Quintica Holdings Limited Quindell claims to have acquired Quintica Holdings Limited on the 18 of September,

ACH Manchester and associated companies

On 14 th January 2014, Quindell announced it had acquired ACH Manchester and associated companies for £5 million in cash and 117.8m Quindell shares. According to Companies House, there is no ACH Manchester. There is also no record of any company that was ever named ACH Manchester 32 . This transaction looks strange for a few additional reasons:

 

Did Quindell mean that it acquired Accident Claims Helpline/ACH Group Management Limited? It seems Quindell meant ACH Group Management Limited, a company that operates the Accident Claims Helpline website, accidentclaimshelpline.org.

ACH Group Management s filings show that it lost about £0.5 million in 2013 and had de

minimis net assets (a slightly negative net asset value), yet Quindell paid £5 million in cash and 117.8m Quindell shares. The 2013 annual report for ACH was signed off on 6 th February 2014. 33 Although Quindell reported the acquisition on the 14 th of January the annual report does not mention any change of ownership or control or any material, post balance sheet events.

Andrew O Dua, Quayside, and ACH Group Management

ACH s Annual Report shows that it is owned by Quayside (2801) Holdings. Quayside was incorporated in June 2013 and wholly owned by Andrew O Dua. ACH was incorporated in 2009 and was also wholly owned by Andrew O Dua. In July 2013 Andrew O Dua sold 1 ACH share to Quayside in exchange for 6 million Quayside shares. The economic substance of this transaction is questionable for the following reasons:

One ACH share appears to equal 100% ownership of ACH (there is only one share in issue according to the 2013 annual report). ACH s full list of shareholders as of the 14 th of July 2009 shows 100 shares in issue. ACH s incorporation filing also shows 100 shares. Both ACH and Quayside seem to have been wholly owned by Andrew O Dua the entire time.

ACH appears to have been an insurance claim lead generator company (via cold calls), and irritated quite a few people as evidenced by the complaints listed here http://whocallsme.com/Phone-

Number.aspx/01457778260/2.

ACH s use of an .org domain for its website seems misleading, as .org has historically only been available for non-profits. In fairness, ACH does (economically speaking) look like a non-profit (though Quindell will surely find some way to magically enhance its own profits through its acquisition of ACH).

Telematics Accounting Issues & Related Party Transactions

Clear Pattern of Related Party Transactions, Accounting Irregularities, and More

Rather than finding evidence of great products, business acumen, or competitive advantage, we have so far found a disturbing pattern of the following in Quindell s business activities:

Transactions that lack apparent economic substance. Recording revenue from transactions that lack areasonable arm s-length process. Transactions/sales to subsidiary, related party, affiliated party, joint venture, etc. Boomerang (two-way) transactions to nontraditional buyers. Accounting irregularities, and unexplained errors. Receivables (especially long-term and unbilled) growing much faster than sales.

Some may concede that our findings up to this point are concerning and valid, but that Quindell s future lies with telematics. Unfortunately, Quindell s telematics crown jewels Himex and Ingenie, exhibit the same symptoms described above. The following particularly concern us:

99% of Himex s 2012 balance sheet does not mathematically reconcile. Himex is Quindell s largest acquisition (in its history). Quindell s 2013 filing claims Himex is a customer, yet it s also a subsidiary.

Himex itself is a roll-up entity consisting of Himex, eeGeo, Navseeker, and Mileage Management. Former executives allege Himex/Navseeker lied to them about its financial state and that in effect they were operating a Ponzi-style scheme. Hassan Sadiq a former Innovation Group executive, under then Innovation CEO Robert Terry is the CEO and Chairman of Himex. Ingenie s CEO Richard King is also tied to both Sadiq & Terry. Hassan Sadiq does not mention Himex in his Linkedin profile. We find this puzzling given Himex s purported recent success. Himex s 2012 revenue is immaterial £45,646 (administrative expenses is nearly identical, £45,089) and a £545,432 loss in 2013. Ingenie s CEO claims annual revenues of £80 million , but Ingenie s actual revenues are likely closer to 1/10 th of that. Quindell s reported 2013 sales to Ingenie exceed our estimate of Ingenie s total sales by over 2x

If a seller and a customer are also affiliated in some other way, the seller s quality of revenue on sales may be suspect. For example, a sale to a vendor, a relative, a corporate director, a majority owner, or a business partner raises doubt as to whether the terms of the transaction were negotiated at arm s length.

That is, most related-party transactions that lack an arm s-length exchange produce inflated, and often phony, revenue. Financial Shenanigans, Howard Schilit

Quindell s Largest 2013 Telematics Customer is Itself

For 2013 Quindell reported telematics revenue of around £40.0 million. £24.5 million of this was sales to its associates Ingenie and Himex 1 :

Quindell s Largest 2013 Telematics Customer is Itself For 2013 Quindell reported telematics revenue of around

We find the quality of the £40.0 million revenue suspect, for the following reasons (in addition to the concerns discussed in the remainder of this section):

Quindell makes no mention of any inter-company transactions, eliminations, or related party transactions, despite the fact the purported sales to Ingenie and Himex fit the bill. Quindell has a demonstrated history of recognizing subsidiaries as large customers, and recording substantial revenue from them. CEO Rob Terry, Himex s CEO Hassan Sadiq, and Ingenie s CEO King ties run deep, to the Innovation Group days.

Himex s Funny Balance Sheet

Himex s 2012 financial statements appear materially incorrect, as the Himex statement of cash flows claim a£12,000,000 capital expenditure (an outflow of cash), despite financing of only £9,250 and a net cash inflow from operating activities of £19,190 2 :

Quindell s Largest 2013 Telematics Customer is Itself For 2013 Quindell reported telematics revenue of around

There was no cash on the balance sheet to finance the above capital expenditure:

Quindell s Largest 2013 Telematics Customer is Itself For 2013 Quindell reported telematics revenue of around

And Himex 2012 revenues and profits were de minimis:

And Himex 2012 revenues and profits were de minimis: Himex s 2013 financial statements are materially

Himex s 2013 financial statements are materially inaccurate as well, as a result of 2012 accounting irregularities identified in the prior page 3 :

And Himex 2012 revenues and profits were de minimis: Himex s 2013 financial statements are materially

Himex Discloses Less Information in its 2013 Annual Report vs. its 2012 Annual Report

In 2012, Himex disclosed an income statement, balance sheet, and statement of cash flows (despite being a rather small company). Seeing that Himex grew in 2013 (as claimed by Quindell), it is strange that Himex elected to disclose less information in 2013 4 :

Himex Discloses Less Information in its 2013 Annual Report vs. its 2012 Annual Report In 2012,

Himex s 2013 annual report omits an income statement and statement of cash flows. It s not obvious to us that Himex is qualified to do so 5 :

Himex Discloses Less Information in its 2013 Annual Report vs. its 2012 Annual Report In 2012,

Himex s reported balance sheet total (whether it s real or not) exceeds £2.8 million According to Himex s linkedin profile, the company has 51-200 employees 6

Himex Discloses Less Information in its 2013 Annual Report vs. its 2012 Annual Report In 2012,

It s possible that Himex had less than 50 employees at the time. We still find their opacity suspicious, given the company provided more information, greater transparency when it was smaller.

In February 2014, when Quindell increased its stake in Himex to 85%, it stated that it expected the acquisition to enhance earnings in 2014. The acquisition valued Himex at £240 million implying a valuation close to 100x historic revenue, and 20x revenue if their monthly revenue run rate of £2 million is correct. 7

The 19% stake acquired 7 months earlier valued Himex at £46 million, 1/6 th the 2014 valuation. Octo, a telematics market leader, was sold for EUR 405 million the same month, at 4x revenue.

Himex s Strange Acquisitions, and Allegations of Fraud

Himex appears stranger, the closer we look. It purchases a few companies for a£1 each, and former executives accuse it of fraud:

Navseeker and Allegations of Fraud - Himex s 2013 annual report shows that in April 2012 Himex signed an agreement to acquire Navseeker Inc. Himex s 2013 annual report discloses that 80% of Navseeker was acquired for £1 8 .

After Himex purchased Navseeker for £1, several former Navseeker executives sued the company in the United States. They alleged:

Navseeker deceived them into investing hundreds of thousands of dollars into the company. 9 Navseeker s founders lied to them about the financial condition and future prospects of the company. The company s telematics platform was incomplete and not functional contrary to claims otherwise. Navseeker s founders were effectively operating a Ponzi-style operation to recover their own initial investment in the business.

Evogi Group is Navseeker

Himex s website claims it acquired The Evogi Group in 2012 (yet Himex s filings do not mention Evogi), and Himex s website fails to mention Navseeker 10 :

In February 2014, when Quindell increased its stake in Himex to 85%, it stated that it

Evogi is Navseeker, per court filings 11 :

Evogi is Navseeker, per court filings : Evogi s website does not appear fully functional, as

Evogi s website does not appear fully functional, as links to its management team is dead 12 :

Evogi is Navseeker, per court filings : Evogi s website does not appear fully functional, as
Evogi is Navseeker, per court filings : Evogi s website does not appear fully functional, as

Evogi received a notice of pending revocation (oddly, it was issued well after Himex acquired them) 13 :

Evogi is Navseeker, per court filings : Evogi s website does not appear fully functional, as

These are hardly signs of a successful and thriving operation.

Mileage Management Limited Himex s 2013 annual report shows that Himex acquired Mileage Management Limited for £1 from Ingelby in February 2013. Mileage Management s 2012 reported revenue was £1.4 million, slightly up from £1.3 million in 2012, and operating at a small loss. 14

Strangely, Himex also acquired Mileage s former parent Ingelby on 9th July 2013. Ingelby s 2012 annual report clearly shows a highly unprofitable company whose going concern is in question, and it is pursuing a sale of the company.

eeGeO eeGeo is the only company that Himex seems to have acquired for more than £1. Himex purchased eeGeo for £1.15 million. The income statement for eeGeO is not available, but its limited accounts (available via UK filings) show losses increasing, cash decreasing, intangible and tangible assets decreasing. 15

In short, it s unclear what s so special about Himex (as the sum of Evogi, Mileage Management, Ingelby, and eeGeo).

QPP CEO Rob Terry and Himex CEO Hassan Sadiq Cosy Ties Extend Back to Innovation Days

We find the peculiar business dealings between Rob Terry s Quindell and Hassan Sadiq s Himex to resemble the dealings between Innovation Group and Cosy. It s unclear why Mr. Sadiq does not list Himex in his linked profile 16 :

These are hardly signs of a successful and thriving operation. Mileage Management Limited Himex s 2013

Ingenie s Confusing and Inconsistent Claims

Ingenie s Founder and CEO, Richard King (a co-founder of Innovation Group, i.e. one of Robert Terry s former business associates) claims Ingenie has established itself as one of the leaders in telematics insurance for young drivers with annual revenues of £80 million 17 :

Ingenie s Confusing and Inconsistent Claims Ingenie s Founder and CEO, Richard King (a co-founder of

In a press release dated 19 th September 2013, Quindell CEO Rob Terry said, 18

"With ingenie significantly profitable already and approaching a run rate of £50 million of gross written premium

Unless Ingenie has magically increased its own revenue to £80 million since, we believe King s claim in his Linkedin profile is highly misleading for the following reasons:

 

Ingenie is not an insurer, it is an intermediary service provider (a middleman).

Gross Written Premium ( GWP ) is highly technical jargon insurers use.

 

Gross Written Premiums (in insurance parlance) sold through Ingenie as a broker are not equivalent to Ingenie s revenues. Ingenie s revenues are a fraction of GWP.

Ingenie s principal activity according to Ingenie 19 :

Ingenie s Confusing and Inconsistent Claims Ingenie s Founder and CEO, Richard King (a co-founder of

Ingenie s 2012 revenue barely exceeded £1 million in revenue:

Ingenie s 2012 revenue barely exceeded £1 million in revenue: Quindell s 2013 Sales to Ingenie

Quindell s 2013 Sales to Ingenie Exceed Our Estimate of Ingenie s Total Revenue Recall Quindell reported sales to Ingenie of £9.4 million in 2013 20 :

Ingenie s 2012 revenue barely exceeded £1 million in revenue: Quindell s 2013 Sales to Ingenie

We estimate Ingenie s 2013 total revenue to be no more than £5.0 million. An investor who spoke with Quindell about Ingenie says, based on that conversation, he thinks Ingenie revenue may simply be 10% of GWP of £50 million, or £5.0 million. Gotham City Research has reason to believe Ingenie s 2013 total revenue was closer to £2.5-3.0 million, but no matter; Ingenie s 2013 total revenue is far less than the £9.4 million it paid to Quindell, which looks very odd.

Getting facts straight This Quindell slide claims Quindell invested in Ingenie in Winter 2010 22 :

Getting facts straight This Quindell slide claims Quindell invested in Ingenie in Winter 2010 : The

The 2011 Quindell Annual Report claims otherwise 23 :

Getting facts straight This Quindell slide claims Quindell invested in Ingenie in Winter 2010 : The

The Dark Side of Quindell Legal Services

Judging by Quindell s accounting, earnings quality, and related party transactions, would you trust that the company s personal injury-related businesses are scrupulously complying with the Legal Aid, Sentencing and Punishment of Offenders Act ( LASPO or the Jackson Reforms)? Introduction to the UK s Personal Injury Problem "People who make false whiplash claims need to realise they are genuinely ripping off their neighbour." 1

Britain is referred to as the whiplash capital of Europe (whiplash, as in the neck injury) with 1,500 insurance claims a day, many of which are spurious, adding £90 to the cost of car cover. 2

Whiplash accounts for 78% of all personal injury claims in the UK, compared with just 3% in France. Europe-wide research conducted in 2004 showed that the UK had twice the average percentage of whiplash claims as a proportion of personal injury claims compared with the European average. The Association of British Insurers says little has changed since then. An estimated 30% of whiplash claims are exaggerated 3 Personal injury claims over the past few years have remained steady but there s been a dramatic rise in insurance premiums in spite of a fall in accident rates. Many believe that a compensation culture emerged as a result of aggressive advertising/tv commercials by claims management companies (such as the ones Quindell owns), referral fees paid by claimant solicitors, and skewed incentives. Insurance premiums are up ~80% since October 2008 with personal injury claims accounting for the majority of this increase. The proliferation of claims management companies and lawyers working on a no-win, no-fee basis encouraged motorists to pursue spurious personal injury cases with little perceived financial risk to themselves, not realising the impact such cases have had on insurance costs 4 .

Enter the LASPO/Jackson Reforms aimed at reducing spurious personal injury claims 5 :

Referral fees are banned in personal injury cases. No win no fee CFAs remain available in civil cases, but the additional costs involved (success fee and insurance premiums) are no longer payable by the losing side. No win no fee DBAs are available in civil litigation for the first time. The lawyer's 'success fee' in CFAs, or 'payment' in DBAs - is capped at 25% of the damages recovered, excluding damages for future care and loss

Unclear How Quindell Remains Untouched Post-Jackson

Before and after the Jackson reforms, Quindell went on an acquisition spree and bought many personal injury law firms and claims companies the very companies one would (correctly) expect to suffer post Jackson. The companies Quindell purchased were profitable pre-acquisition (some barely, some

decently) but the Jackson reforms made their business models redundant. On their own they would probably still not exist, or at best be shells of their former selves.

Quindell set up an Alternative Business Structure ( ABS ) in order to survive post-Jackson. We question the viability and propriety of this structure, and Quindell s personal injury-related businesses for the following reasons:

         Quindell refuses to explain how its legal
Quindell refuses to explain how its legal services/personal injury business complies with the
referral fee ban and overall Jackson reforms.
Legal Futures has repeatedly asked Quindell how it complies with the referral fee ban, but it has
not returned any calls. 6
Unclear (at best) how exactly Quindell ethically lowers the total cost of claims when it claims
to currently pays £800 in cost of acquisition per case. 7
Quindell refuses to disclose profit margins for its personal injury-related subsidiaries since it
acquired them (e.g. Silverbeck Rymer, Ai Claims, Mobile Doctors, Pinto Potts, etc).
20-25% EBITDA margins for its personal injury / legal services-related business seem a stretch. Ai
Claims and Mobile Doctors historically reported 4%-6% EBITDA margins. Silverbeck Rymer s
2010 EBITDA margin was 23%, but that s Pre-Jackson reforms.
Quindell s claim that it seeks to stamp down the total cost of claims seems inconsistent with
its Microsoft/Google-like reported EBITDA margins.
Quindell s claim that it reduces spurious/fraudulent personal injury claims seems inconsistent
with attributing its financial success to gaining volumes and favorable operating leverage.
The Chairman of the Transport Select Committee, Louise Ellman recently initiated a probe to
determine whether ABSs are used to side-step the referral fee ban 8 .
Accidents on downtrend, injury claims on the increase. This is a dynamic that is likely to pressure
the personal injury industry.

Quindell and the £800 per case referral fee

Quindell specifically states in its 2013 preliminary results that the company pays a £800 referral fee per case. We find this highly noteworthy as:

Quindell does not bother to pretend it complies with the spirit of LASPO/Jackson

Unclear how such an explicit fee structure complies with the letter of the law This is the same cost per lead as they claimed was standard Pre-Jackson, which means high margins should be more difficult to achieve as alaw firm s revenue per claim decreases post- Jackson.

Quindell Claims to be Ethical, Yet is Noticeably Opaque

Judging by Quindell s actions (rather than its or its CEO s words), Quindell seems fearful of the consequences that transparency will bring to its personal injury businesses. This would explain why

Quindell remains opaque, refusing to provide basic personal injury/legal services financial information. Quindell initiated an investor teach-in campaign last year (in order to calm nervous investors when its stocks had plummeted). The company unsurprisingly answers few question in their presentations, as we show:

Ai Claims Solutions, is a very large % of Quindell s revenue yet Quindell refuses to provide current details in its investor teach-in June 2013 (Quindell discloses stale 2011 figures in its 2013 teach-ins) 9 :

Quindell remains opaque, refusing to provide basic personal injury/legal services financial information. Quindell initiated an investor

More of the same Opacity with Silverbeck Rymer, as it discloses 2010 figures in 2013:

Quindell remains opaque, refusing to provide basic personal injury/legal services financial information. Quindell initiated an investor

Mobile Doctors More stale 2010 financial results

Mobile Doctors More stale 2010 financial results Despite its blatant refusal to provide very basic financial

Despite its blatant refusal to provide very basic financial information, Quindell claims:

Mobile Doctors More stale 2010 financial results Despite its blatant refusal to provide very basic financial

We largely trust Quindell s Legal services business subsidiaries historical reported numbers (the long documented history of margin data helps), but this is pre Jackson and many of these subsidiaries were low margin businesses pre Jackson we don t think they re magically higher margin now.

Some Believe The ABS is Used to Circumvent the Referral Fee Ban

There are already lawmakers and others who have expressed concern that the ABS is being used to circumvent the LASPO/Jackson reforms 10 :

Former DLG head of bodily injury Geoff Leeks, maintained that ABSs were being used to circumvent the ban fuelled in some instances by a desire to maximise profit

Leeks added: There are many ways in which you can circumvent the ban that avoid an exchange of a referral fee. You can have all sorts of processes that mean both the insurer and the lawyer make a profit from the arrangement.

Leeks said he would welcome an investigation into these practices. They are not sustainable and suit only those looking for short term gain, he added.

Changing Legal Services Sales Disclosures

As if it weren t already difficult to obtain Quindell s personal injury-related financial information, Quindell recently dramatically reclassified/restated legal services 2012 numbers in the 2013 11 :

From the 2013 preliminary results

Changing Legal Services Sales Disclosures As if it weren t already difficult to obtain Quindell s

From the 2012 Annual Report:

Changing Legal Services Sales Disclosures As if it weren t already difficult to obtain Quindell s

So according to the 2013 preliminary results, Quindell s 2012 legal services related sales is £7.1 million, whereas the 2012 Annual Report stated it is £34.3 million!

Additional Accounting and Oversight Issues

A Certified Fraud Examiner s Dream Come True

What particularly amazes us is that the deeper we dig into Quindell, the more we find. It seems as if there exists an infinite & growing supply of Quindell red flags. We are simply in awe of the fact that a company this size (with a market value between $4-$5 billion recently) has so many qualities companies 1/100 th of its size possess. For example:

We visited the address Quindell claims as its New York office. The receptionist told us he s never heard of a Quindell occupying the 9 th floor. Quindell lists a Florida phone number as its New York phone number. We called Quindell s India office on several different occasions, and no one picks up. Quindell has had 3 auditors in 3 years as a publicly-traded company. QPP went public via the backdoor reverse merger, just as many frauds in the past have. Questionable corporate governance practices. Use of bank overdraft as a source of financing. Robert Terry s credibility is questionable. Terry actively promoted QPP s stock on Twitter; other executives in the United States have been fired for lesser offenses. Press releases and RNS that resemble penny stock pump and dump promotions. Quindell s recent news titled, POTENTIAL FOR LARGEST TELEMATICS ROLLOUT GLOBALLY was released Monday 07 April 2014, but it was created 12 March 2014, according to Quindell.com

Quindell New York Due Diligence Check We visited 280 Madison Avenue, New York NY 10016 1 :

Additional Accounting and Oversight Issues A Certified Fraud Examiner s Dream Come True What particularly amazes

The building is not exactly an A-grade office building (to put it kindly). It s certainly not a building an up- and-coming business would occupy. We asked the front desk receptionist that we wanted to visit

Quindell on the 9 th floor. The receptionist gave us a confused look, asking, Who? We asked again, and he said he s never heard of a Quindell. We then asked him if there were any technology/software businesses on the 9 th floor. He definitely said no.

We called Quindell s listed phone number several times. No one ever picks up; the call goes to voice mail after several rings. The funny thing is that the telephone number +1 772 245 7648 is aFlorida phone number.

Quindell New York is SMI Telecoms New York Office as Listed in 2011

The New York address is exactly the same address we found in a 2011 archived version of smi-t.com s website (although the phone number looks strange, as it too, is not a New York area code) 2 :

Quindell on the 9 floor. The receptionist gave us a confused look, asking, Who? We asked

Quindell India Due Diligence Check An India location is mentioned in 2011 Quindell annual report, but no more mentions afterwards 3 :

Quindell on the 9 floor. The receptionist gave us a confused look, asking, Who? We asked

But Quindell s website mentions an India office:

Quindell on the 9 floor. The receptionist gave us a confused look, asking, Who? We asked

We called the listed India office few times, but no response. There s not even a voice message. It turns out, the Quindell India address and phone number information are identical to SMI Telecoms as of 2011 (per archived versions of its website, just like Quindell New York):

We called the listed India office few times, but no response. There s not even a

The company s excessive use of info@quindell.com as its contact email raises questions as well.

3 auditors in 3 years

We understand that companies occasionally need to switch auditors for valid reasons. That said, Quindell has had 3 auditors in 3 years. We ve never seen valid reasons for such high turnover. When QPP was a private company, its auditor was Deloitte 4 :

We called the listed India office few times, but no response. There s not even a

Quindell changed auditors to a much lower-tier RSM Tenon (which filed for bankruptcy):

Quindell changed auditors to a much lower-tier RSM Tenon (which filed for bankruptcy): Then on 3,

Then on 3, October 2013, Quindell announced it changed yet again, to KPMG:

Quindell Portfolio Plc (AIM: QPP.L), the provider of sector leading expertise in software, consultancy and technology enabled outsourcing in its key markets, being Insurance, Telecommunications and their related sectors is pleased to announce the appointment of KPMG LLP ( KPMG ) as auditor of the Company as a further step in preparation for the Group s proposed full listing. Baker Tilly Audit Limited (formerly known as RSM Tenon Audit Limited) has resigned as auditor of the Company with immediate effect and has confirmed to the Company that there are no circumstances in connection with its resignation which it considers need to be brought to the attention of the Company's shareholders or creditors.

Questionable Corporate Governance Practices

Quindell s website has a section dedicated to corporate governance but it provides very little information (e.g. it does not provide the members of each committee on the website) 5 :

Quindell changed auditors to a much lower-tier RSM Tenon (which filed for bankruptcy): Then on 3,

Lawrence Moorse, who has deep ties to Terry since their Innovation Group days, and is the Company s CFO ( Group Finance Director ) is on the Board. We find it troubling that a man with such close ties to CEO Terry, and who oversees the company s financial statements, is on the Board.

Stephen Scott, who was with Terry at Innovation Group, is on the Board. He and Terry participated in an unusual transaction back in the TiG days 6 :

However, the other event that cast a little doubt on TiG s prospects here at Citywire, was a somewhat unusual contract taken out by chief executive Rob Terry and finance Stephen Scott in December.

The pair bought a contract from the broker UBS to hedge against the company s share price falling. They hedged 1.8 million and 535,714 shares respectively, representing 4.5% of Terry's stake and 20% of Scott's. They didn't comment at the time and were unavailable today.

It s concerning to see Scott, who was involved with IT-Freedom (a QPP subsidiary) on the Board and the Audit Committee 7 :

Lawrence Moorse, who has deep ties to Terry since their Innovation Group days, and is the

Jason Cale was on the audit committee. We find this unusual given his Ubiquity Capital was a major shareholder via shares earned by helping Quindell obtain a reverse merger shell 8 . Cale s ties to Overland and Mobile Doctors, both Quindell subsidiaries, are notable.

Anthony Bowers is the chair of the audit committee. While he was with Deloitte, he worked closely with Robert Terry and Stephen Scott since the Innovation Group days. As a result we find his independence questionable 9 :

Lawrence Moorse, who has deep ties to Terry since their Innovation Group days, and is the

Recall from earlier sections, that CEO Terry s wife signed off on the 2008 filings. There s a clear pattern of questionable corporate governance practices.

Bank Overdraft

Despite Terry s promotional language and gusto, it seems Quindell would ve run out of cash if it weren t for the £200 million it raised in Q4 last year 10 :

you remove the £200 million considerably, year-over-year. If raised, cash is zero, but bank overdraft and
you remove the £200 million
considerably, year-over-year.
If
raised, cash
is zero,
but
bank overdraft and
borrowings are up

CEO Rob Terry s Twitter Activities

CEO Robert Terry (evidently) used to tweet frequently about Quindell and its share price, under his former account https://twitter.com/RobTQuindell . Unfortunately, his account no longer exists. We can imagine, however, how promotional he might ve been, by looking at Richard King s account (CEO of Ingenie and long-time friend/colleague of Terry s since Innovation) 11 :

Bank Overdraft Despite Terry s promotional language and gusto, it seems Quindell would ve run out

The above King tweet is particularly concerning given Quindell s dire straits in 2013, but for its significant £200 million capital raise.

Here is what those who used to observe Terry s tweets (when he was active) had to say 12 :

In Terry's case, it extended to tweeting comments about share prices and trading - altogether out of order, far too time-consuming for a serious manager, especially one faced with the challenge of integrating an rush of acquisitions. And what about this business of treating all shareholders equally when many of us never go near the twitter-sphere? Known for his active use of Twitter to engage with investors, Terry is keen to transfer Quindell to a full stock exchange listing by the autumn and is eyeing possible inclusion in the FTSE 250.

Robert Terry s Overall Credibility Longer term, serious concerns:

Terry aggressively grew a roll-up called Innovation Group, whose share price never recovered since the 2000s. He was let go of Innovation Group in 2003. Terry ran Quindell, a country club, through 2009. CEO Terry and Quindell s reported financial success between 2009-2011 derived largely from sales to itself/subsidiaries. Terry has gained the trust of many by claiming he personally invested £12 million into Quindell s technology platform

Recent examples of over-promise, under-deliver 13 :

Quindell missed targets. Quindell is some £80m short of previous analyst targets for revenue of £460m for 2013. The company has also missed Mr. Terry s own 3p earnings-per-share target. Adjusted earnings per share came in at 2.54p for 2013. And operating cash flow is very negative. In Quindell s stock market results statement, the words proof and validated are mentioned on no fewer than six and four occasions respectively with regards to the strategy and results.

Promotional and Misleading RNS/Press Releases

We delivered on our goal of significantly exceeding market expectations with 168% Growth in technology solutions revenue, our highest margin and most cash generative segment. Rob Terry claims in the 2013 pre annual report.

Actually, Quindell was very cash flow negative in 2013 14 :

Robert Terry s Overall Credibility Longer term, serious concerns:  Terry aggressively grew a roll-up called

A few weeks ago, the company announced ZURICH CANADA CHOOSES QUINDELL SOLUTIONS TECHNOLOGY , but Zurich has been a customer for some time (this is archived from 2010) 15 :

Zurich Insurance was also an Iter8 customer according to this older 2013 Quindell press release. Of

Zurich Insurance was also an Iter8 customer according to this older 2013 Quindell press release. 16

Of course it s possible they are taking on extra software

....

and that it is 'news'

Recent RAC Telematics Contract Press Release Was Created 3 Weeks Before its Release

On Monday the 7 th of April, 2014 (few weeks ago), Quindell conveniently released an RNS (after its shares exhibited some weakness post earnings) titled, POTENTIAL FOR LARGEST TELEMATICS ROLLOUT GLOBALLY . Shares rose significantly (QPP shares closed the prior Friday at ~38 pence/share) and closed that day at ~43 pence/share. The strange thing is, Quindell.com shows this press release was already created several weeks before (we found this by accident, while searching for something else entirely) 17 :

Zurich Insurance was also an Iter8 customer according to this older 2013 Quindell press release. Of

CEO Bob Terry Has Been Talking About a Main Exchange Listing Since 2012

Quindell has been talking about listing on the main London Stock Exchange (and also dual-listing in North America) for quite some time. We believe if QPP were to succeed, it would come to haunt them, as all the company s misdeeds would be exposed.

16 th of October 2012: 18 Quindell also plans to move to the main list from Aim next year probably in the second half. This will make it a strong candidate for entry into the FTSE 250.

21 st of October 2013: Quindell looks to full listing in March 2014 - Quindell Portfolio, an insurance claims processor, has confirmed it is seeking a full listing on the London Stock Exchange next March, with a potential dual listing in Canada. Mr. Terry now says the company will be moving to the main market in early June of this year.

Valuation: Worth No More Than 3p per share

Is Quindell a Good Business?

What CEO Robert Terry will not reveal:

Quindell has not generated lasting free cash flow, and cash flow has worsened with time Earnings quality is very low, as earnings and free cash flow tell very different stories 1

in millions of £s, or units Revenue Net Profits Free Cash Flow Receivables Growth Shares Issued
in millions of £s, or units
Revenue
Net Profits
Free Cash Flow
Receivables Growth
Shares Issued
Shares Outstanding
2010
2011
2012
2013
£4.15
£13.71
£137.56
£380.13
£1.33
£4.16
£31.90
£82.70
£0.00
£1.34
-£59.15
-£64.64
£1.00
£30.47
£170.67
£125.53
0.0
2.4
91.0
200.4
108
1,989
3,309
5,670

We estimate Quindell would ve ran out of cash in 2013 but for its capital raise

Valuation: Worth No More Than 3p per share Is Quindell a Good Business? What CEO Robert

Quindell s equity is at risk of going to zero, if it is found to be in violation of the Jackson reforms. If found to be compliant, the businesses still face serious risks that its underlying industry will shrink. There are many ways for speculators to lose. We find 40%-80% of Quindell s EBITDA suspect. Management credibility and track record are highly questionable.

QPP shares worth no more than 3p per share

We believe QPP shares worth 3p per share (though we think they are uninvest-able until the concerns identified in this report are fully addressed):

We find 2013 s economic earnings lie somewhere between its reported net profits and free cash flow. We take the average, and arrive at 2013 economic earnings of £9 million. We apply a 10x- 20x earnings multiple, and arrive at a valuation of only 1.5-3.0 pence per share, implying more than 92% downside. Tangible book value is 6.1 pence per share, but that is before discounting suspect receivables. Quindell s dividend is negligible and meaningless because the amount of capital raised vastly exceeds the declared dividends. We arrive at a 3p per share valuation by combining the above approaches.

Quindell s Q1 2014 Results Compared Against Nationwide Accident Repair Services Results Quindell claimed adjusted EBITDA margin (which means EBITDA as they see fit) of over 40% in Q1 2014 2 :

Quindell s Q1 2014 Results Compared Against Nationwide Accident Repair Services Results Quindell claimed adjusted EBITDA

Yet a company it acquired last year (22% stake), NARS reported razor thin (and declining) margins 3 :

Quindell s Q1 2014 Results Compared Against Nationwide Accident Repair Services Results Quindell claimed adjusted EBITDA

End Notes

Introduction

  • 1. Google, Microsoft 10Ks, Quindell Annual Reports

  • 2. Quindell Annual Reports

  • 3. Companies House, DueDil, Various Quindell and subsidiary filings

  • 4. Himex Annual Reports, Quindell 2013 Preliminary

  • 5. Companies House; see the Phantom Acquisitions section for more details.

  • 6. Quindell presentations.

Quindell s Anomalous EBITDA Margins

  • 1. Various company filings

  • 2. Mobile Doctors, Ai Claims, and Quindell Annual Reports; Duedil

  • 3. Quindell and its subsidiaries annual reports, Duedil, Companies House
    4.

  • 5. Quindell Investor Teach-In Presentation

  • 6. Quindell Annual Reports

  • 7. http://brontecapital.blogspot.com/2012/11/hewlett-packard-and-autonomy-notes-from.html

CEO Robert Terry Spent £12 million to Build a Country Club

  • 1. Various articles and presentations

    • a. http://www.ft.com/intl/cms/s/0/a4fb0432-b800-11e2-9f1a-00144feabdc0.html ,

    • b. http://www.postonline.co.uk/post/interview/2189103/interview-rob-terry-tackling-

the-problems

  • c. http://www.sharesmagazine.co.uk/articles/quindell-sets-sights-high#.U1SqxPldUrU

  • d. Quindell Annual Report 2011

  • e. Quindell Investor Teach-in

  • 2. Quindell Limited Annual Reports 2001-2008

  • 3.

  • 4. http://archive.org/web/ archive of quindell.com for each respective date

  • 5. Quindell Limited 2008, and http://www.investegate.co.uk/article.aspx?id=201110191056444561Q

Quindell s Largest 2009/2010 Customer is Itself (ClickUs4.com)

  • 1. Quindell Limited and ClickUs4.com Annual Reports

  • 2. Companies House, Quindell Limited filings
    3.

  • 4. Quindell Limited Annual Report 2009

  • 5. Quindell Limited and ClickUs4.com filings

  • 6. Quindell Prospectus

  • 7. ClickUs4.com 2009 and 2010 A