Slater & Gordon Limited investigated for falsifying accounts

Listed law firm Slater & Gordon Limited (ASX: SGH) revealed more bad news this morning after the company admitted it’s being investigated by ASIC for allegedly deliberately falsifying its accounts between 1 December 2014 and 29 September 2015.

Investors have responded to the news by selling the shares down 6 per cent to just 25 cents this morning as the problems mount for the law firm that reported a $1 billion loss in financial year 2016.

The firm was forced to write off $879 million of the value of its purchase of Quindell’s Professional Services division in the UK last year and consequently had a gross debt pile of $765 million at the end of financial year 2016.

On top of this it posted an operating cash loss of $104.2 million last year and it’s no surprise its lenders have been selling its debt to private equity and distressed debt specialist firms. Macquarie Group Ltd (ASX: MQG) reportedly taking a sharp haircut on its loan by selling its debt for just 45 cents in the dollar.

Other bankers have been to the barbers after lending to the law firm and with much of the debt now in the hands of distressed debt specialists known for their adversarial approaches it seems a capital restructure to the detriment of existing shareholders is likely.

Today’s news of ASIC’s investigation into what are potentially serious offences in breach of the law will also heap more pressure on a board that has already turned down an offer by the chief executive to resign once before.

Currently, Slater & Gordon resembles a bonfire with ASIC, its creditors and rival fee-hungry lawyers launching class actions against it all likely to pour more fuel on to the fire over the year ahead. Buying this stock could result in a visit to the burns clinic.

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Motley Fool contributor Tom Richardson owns shares of Macquarie Group Limited.

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.

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