Your Capital at Risk Part 6: Unlicensed Activity


Disclosure: Short PLUS. This content is not directed toward persons with residence or place of business in the United Kingdom. By accessing, transmitting, or reviewing this material, you acknowledge that the author has represented his honest opinion and made statements of fact believed to be true at the time of publication. No content herein should be construed as a recommendation to take action with respect to any security.

Part 1: Short Plus500
Part 2: Bucket Shop
Part 3: Customer Lifetime Value
Part 4: Companies House Inconsistencies
Part 5: Audit Opinions
Part 6: Unlicensed Activity
Part 7: Whois Plus500?
Part 8: Scalping
Part 9: Worldwide Web
Part 10: Competition
Part 11: Unanswered Questions
Part 12: Legal Consequences

Plus500′s purported 2010-11 revenue was either generated illegally or not at all. Inconsistency #8 in Part 4 is significant enough that it deserves its own post.

Comparison of Group and Plus500UK turnover 2010 2011 2012 2013 2013 as restated 2014
A. Group reported revenue 24,211  50,028  56,127 115,088 115,088 228,865
B. Plus500UK reported revenue, translated into USD 1,553 28,993 44,692 99,864 20,043 40,025
C = A – B. Revenue generated elsewhere 22,658  21,035  11,435 15,224 95,045 188,840
Plus500UK as % of Group reported revenue 6.4%  58.0% 79.6%  86.8%  17.4%  17.5% 
D. Stated revenue from EEA/Gibraltar customers 18,667 42,874 49,785
E = D – B. Missing revenue from regulated customers 17,114  13,881  5,093

Revenues are translated at period average exchange rates. EEA/Gibraltar revenue for 2010-2012 is based on percentage of Group revenue disclosed in the Admission Document.


There are two important takeaways from the $24.2 and $50.0 million in reported 2010 and 2011 revenues in the Admission Document. The first is that these amounts exceed the revenue reported in the Plus500UK subsidiary by over $20 million both years (line C). We already know that the Plus500UK revenue was reported on a gross basis prior to the 2014 report, so any difference must arise from the Parent or another subsidiary. We know from the Admission Document that Israel represented a very small proportion of revenue (2%). The Australia and Cyprus regulated subsidiaries were not yet up and running. Therefore, the remaining revenue must have been generated in other jurisdictions, where Plus500 was unlicensed.

This may not seem controversial. The Admission Document (p.36) discloses that Plus500 operated illegally for a period of time:

The Group has grown rapidly and as part of this growth has, in the past, commenced trading in a limited number of jurisdictions where operations have been found to constitute, or are likely to constitute, an offence and the penalties (whether civil, criminal, regulatory or other) against the Group or its directors are unknown.

It seems probable that Plus500′s dormant subsidiary MeVideoCY Ltd. (p.84) was responsible for these activities. More on this in Part 7.

However, it is not possible to reconcile this $43.7 million of unlicensed, unregulated activity with the customer domicile disclosures in the Admission Document.

The second important takeaway is in line E of the table. In 2010 and 2011, respectively, the Admission Document claims that 77.1% and 85.7% of turnover was generated within the EEA and Gibraltar—under the aegis of the FSA. If the Admission Document is accurate, Plus500 generated $17.1, $13.9, and $5.1 million in 2010, 2011, and 2012 from UK/European customers without those revenues flowing through Plus500UK. Did Plus500 conduct unlicensed activity in the EEA even after its license was obtained in 2010? Alternatively, did the Admission Document misrepresent the geographic origin of Plus500′s customers? Did it present 2010-11 revenues that were higher than the company actually earned?

 

On to Part 7: Or was Plus500 operating an undisclosed subsidiary? –> 

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