Shares of legal eagle Slater & Gordon Limited (ASX: SGH) have come under further scrutiny today after the United Kingdom's financial watchdog, the Financial Conduct Authority (FCA), announced a probe into the activities of Quindell Plc.
Slater & Gordon recently purchased part of the Quindell business for $1.2 billion.
Unfortunately for shareholders, there is little that Slater & Gordon can say about the pending investigation by the FCA which has seen the company's share price slammed 12.1% this morning to trade at just $5.39 per unit. That follows yesterday's 5.5% decline.
Slater & Gordon first announced its acquisition of Quindell's professional services division in March this year as a strategy to dramatically increase its presence in the UK market.
Although it is too early to determine whether or not the company made a huge mistake in doing so, investors and analysts alike have expressed their concerns about the amount paid for the business (£637 million, or approximately $1.225 billion), as well as the accounting practices of Quindell, which have been called into question in the past.
The FCA said that it would look into "public statements made regarding Quindell's accounts during 2013 and 2014", which may relate to the division recently acquired by Slater & Gordon.
Given the circumstances and the uncertainty related to the situation currently unfolding, investors would be wise to steer clear of Slater & Gordon, for now at least. Until more details are provided, there is no way of knowing just how damaging this could be to the group's overall earnings, and reputation.
