Why the Nuix (ASX:NXL) share price just hit its lowest level ever

The Nuix Ltd (ASX: NXL) share price hit it lowest point ever today, after media articles questioned the company and its business activities.

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Shares in Nuix Ltd (ASX: NXL) have reached their lowest point ever today, following media articles questioning the company’s governance and business activities. At the time of writing, the Nuix share price is trading at $3.17, down 8.65% from Friday’s close.

That’s a slight improvement on the software company’s all-time low of $3.06, which it hit earlier today.

The media articles were published by Fairfax outlets early this morning. They are reportedly the result of a joint investigation by the Australian Financial Review, The Age, and The Sydney Morning Herald. According to the publications, the reports are based on a number of interviews with staff and former staff, as well as confidential internal documents.  

Nuix defended itself against the claims, saying the company has a “proud history” of conforming with regulators. Nuix also declared that the allegations were largely based on testimonies from unnamed sources.

Let’s take a look at the media storm seemingly dragging on the Nuix share price today.

Media storm

Much of the reporting published by the Fairfax outlets discuss Nuix founder, Tony Castagna.

Castagna was charged with money laundering and tax evasion in 2018 but was acquitted the following year.

The reports claim Castagna was hired as a consultant at Macquarie Group Ltd (ASX: MQG)’s Macquarie Bank in 1998. He was later asked to manage Nuix, in which Macquarie held a significant investment.

According to the Fairfax publications, Castagna left Nuix’s board the day its ASX float prospectus was launched. The outlets further state that few retail investors would have been aware that Castagna was involved with Nuix.

The reports also allege in the years prior to Nuix’s float, its board launched a coup attempt at CEO Rod Vawdrey. Further, the articles questioned the company’s culture and the disclosure of its finances.

According to the publications, ASIC was warned by a director of Aperion Law on behalf of one of its clients that Nuix’s prospectus needed to be investigated.

The law firm was quoted in the reports as saying:

There is a risk that financial errors or mismanagement by Nuix, including but not limited to: errors in financial reporting practices or the accounting treatment of certain transactions; the incorrect interpretation of accounting standards or incorrect tax calculations.

The publications stated that ASIC then monitored Nuix’s initial public offering (IPO). Finally, the articles listed the profits made by Macquarie, Castagna, and Vawdrey as a result of Nuix’s float.

Nuix’s response

While the Nuix board stated it wasn’t going to respond to every allegation published by the Fairfax outlets, it did respond to a number of claims.

Nuix responded to the reports’ mentions of Castagna, saying:

Tony Castagna was a founder of the company and a large part of its success. Mr Castagna was acquitted of charges relating to his personal tax affairs in 2019. He has provided consulting assistance to the company.

The board also defended the company’s culture and lawfulness. It said:

Nuix has in place robust processes to measure forward indicators of performance in order to ensure that it keeps the market fully informed and has done so on a timely and regular basis. Nuix is committed to the highest standards of corporate governance…

The Board recognises and prizes Nuix’s strong corporate culture and high calibre leadership. Nuix continues to add to the considerable skills and experience of the existing executive team as it pursues its growth agenda… The effectiveness, dedication and stability of the Nuix leadership team over many years has been at the heart of the company’s ongoing success in winning new customers and in growing the value of the order book and pipeline.

Nuix share price snapshot

Nuix shares have fallen significantly during their first few months on the ASX.

Since it floated on 4 December 2020, the Nuix share price has plunged by around 60%.

Nuix has a market capitalisation of $1.1 billion, with approximately 317 million shares outstanding.

Motley Fool contributor Brooke Cooper has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. recommends Nuix Pty Ltd. The Motley Fool Australia owns shares of and has recommended Macquarie Group Limited. The Motley Fool Australia has recommended Nuix Pty Ltd. 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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