MENU

Slater & Gordon Limited wants a $1 billion back in fraud claim

Troubled tort law specialist Slater & Gordon Limited (ASX: SGH) is going to court in the UK in an attempt to claim around £600 million ($1 billion) back in compensation from Watchstone Group Plc over its purchase of Watchstone’s professional services division known as ‘Quindell’ in 2015.

Back in 2015 Slater & Gordon agreed to pay around $1.2 billion for Quindell, despite the fact Quindell already operated under a dark cloud of accounting investigations and other regulatory issues around misrepresentations in its business model.

Slater & Gordon also today announced that the UK’s Serious Fraud Office has demanded it hand over documents related to Quindell as a company under investigation for fraud.

If the fraud allegations are proven in misleading Slater & Gordon into entering the deal the lawyers may be able to claim some financial compensation in court, although it’s unlikely the Watchstone Group has anywhere near like the financial firepower to meet a claim of around $1 billion.

Slater & Gordon may have recourse to compensation via some sort of professional insurance, although as an investor I would not count on that or any court claim succeeding as an elixir for a legal business still carrying around $740 million in debt.

The firm’s problems are largely self inflicted with the deal to buy a poorly performing company with serious allegations already existing around it one of the biggest blunders in Australian corporate history. At the time of the deal Slater & Gordon’s management team claimed it had conducted some of the most extensive due diligence going, although a simple Google search on Quindell would have shown that multiple serious allegations already existed against it.

In fact if Slater & Gordon’s CEO Andrew Grech was taken to court and charged with being a laughing stock, I would not want to be acting for the defence.

The CEO’s blunders have destroyed virtually all of the shareholders’ wealth in the business and it is now largely reliant on the largesse of a collection of U.S. hedge funds and distressed debt specialists in being able to continue as an operating entity.

Can it get out of jail for free?

The stock has climbed 9.5% today to 11.5 cents, but is still down around 95% since the 2015 deal to acquire Quindell. A successful compensation claim would be a major positive for the business, however, I would not suggest buying shares today as the law firm’s mountainous debt pile and recent operating cash out flows remain major problems.

I suspect the most likely end to the sorry Slater & Gordon story is a debt-for-equity swap enacted by the hedge funds that would see existing shareholders all but wiped out in return for its hedge fund creditors writing off a significant part of its debt.

Forget Slater & Gordon!

As you could discover 3 ASX Blue Chips With Market-Crusing Prospects

For many, blue chip stocks means stability, profitability and regular dividends, often fully franked..

But knowing which blue chips to buy, and when, can be fraught with danger.

The Motley Fool's in-house analyst team has poured over thousands of hours worth of proprietary research to bring you the names of "The Motley Fool's Top 3 Blue Chip Stocks for 2017."

Each one pays a fully franked dividend. Each one has not only grown its profits, but has also grown its dividend. One increased it by a whopping 33%, while another trades on a grossed up (fully franked) dividend yield of almost 7%.

If you're expecting to see the likes of Commonwealth Bank, Telstra and Wesfarmers shares on this list, you'll be sorely disappointed. Not only are their dividends growing at a snail's pace, their profits are under pressure too due to the increasing competitive environment.

The contrast to these "new breed" blue chips couldn't be greater... especially the very real prospect of significant share price gains, something that's looking less likely from the usual blue chip suspects.

The names of these Top 3 ASX Blue Chips are included in this specially prepared free report. But you will have to hurry. Depending on demand - and how quickly the share prices of these companies moves - we may be forced to remove this report.

Click here to claim your free report.

Motley Fool contributor Tom Richardson has no position in any stocks mentioned.

You can find Tom on Twitter @tommyr345

The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

Two New Stock Picks Every Month!

Not to alarm you, but you’re about to miss a very important event! Chief Investment Advisor Scott Phillips and his team at Motley Fool Share Advisor are about to reveal their latest official stock recommendation. The premium “buy alert” will be unveiled to members and you can be among the first to act on the tip.

Don’t let this opportunity pass you by – this is your chance to get in early!

Simply enter your email now to find out how you can get instant access.

By clicking this button, you agree to our Terms of Service and Privacy Policy. We will use your email address only to keep you informed about updates to our website and about other products and services we think might interest you. You can unsubscribe from Take Stock at anytime. Please refer to our Financial Services Guide (FSG) for more information.