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iSignthis shares suspended ‘until further notice’

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iSignthis Ltd (ASX: ISX) shares will remain in an ASX imposed trading halt ‘until further notice’ despite the ‘paydentity’ business providing more answers to the securities regulator’s queries last Friday, November 15.

The six-week suspension of shares has turned into something of a blame game between the regulator and iSignthis’s management team, but the bottom line is that a suspension like this is highly irregular in a lightly regulated local share market. 

According to today’s update a number of issues around revenue recognition, the probity of clients, related party transactions, and disclosure remain among the ASX compliance team’s lines of investigation. 

In particular the regulator is honing in on how iSignthis reported more than $5 million of revenue for the six months ended June 2018, before revenue plunged to just $1.09 million over the next six months.

The issue is important as the revenue booked for the six months period to June 2018 earned iSignthis’s management team significant performance rights in the business via options over huge amounts of new shares. 

In today’s market the regulator asked if any of the revenue for the 6 months ending June 2018 was subsequently refunded or reversed. It also requested bank statements, receivables balances, invoices, and remittance advices related to the period. 

iSignthis is also being investigated by the financial services regulator ASIC and has faced other allegations of impropriety from self-styled financial watchdog Ownership Matters

What now?

If iSignthis cannot persuade the regulators it’s in compliance with the general financial services laws and disclosure requirements its principal route to redress is though the law courts.

For example it could apply to have any adverse rulings issued by the regulators as incorrect or as an overreach of their own powers under the law. 

However, there’s little guarantee it would succeed in this and the best hope remains that it can reach a mutual agreement with the regulators.

For now though it looks bad for iSignthis. As when businesses run into trouble with regulators on account of past disclosures around reported financials or other operating metrics it’s best to give them a wide berth in my view. 

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Motley Fool contributor Tom Richardson has no position in any of the 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 Scott Phillips.

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