AIM Is Wide of the Mark; ANALYSIS

The Mail on Sunday (London, England), April 21, 1996 | Go to article overview
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AIM Is Wide of the Mark; ANALYSIS


THE LAUNCH last summer was a spluttering affair. But the Alternative Investment Market took off, fuelled by small punters getting behind many of the new issues.

Pan Andean Resources, a little-known Bolivian oil exploration stock, could be bought at 18p when it started on AIM last September. Today it is 66p.

In July 1995, a small biotech company called Stanford Rook arrived on the market at 125p. It is now trading at 538p.

And Financial Publications has risen from 38p a share in September to 245p.

But what goes up can come crashing down. In September, computer-chip group Memory Corporation was more than [pounds sterling]5 a share.

Today the price stands shredded at just 198p, leaving aggrieved investors wondering why it was such a wonder stock last October when it raised [pounds sterling]5 million - at 420p a share - on stratospheric forecasts from analysts and commentators.

Advertising agency and marketing group Firecrest is another to take a nosedive, after a swerve in business strategy into a variety of fashionable Internet-related products and services. From the 38p issue price in July, and after a spate of bullish announcements, the shares soared to around 200p.

They have since fallen to 55p, hit by doubts about some of its more ambitious Internet projects, suggestions of a false market being created in the stock and the recent [pounds sterling]1.5 million placing at 50p a share.

In all, 140 companies have floated on AIM since it began last June, raising [pounds sterling]243 million.

Nominated advisers were created by the Stock Exchange to police the market. Mainly stockbroking and accountancy firms, they have to be approved by the Exchange and then become, in effect, the market's regulators.

Some 57 nominated advisers are involved in AIM, and many more professionals are applying for licences. Merrill Lynch, the US broking house that began making markets in 25 AIM companies last month, is said to be looking at a licence application.

The theory behind the nominated advisers is that their names are at stake if one of their companies goes sour. They have to make directors stick to guidelines.

But some of the guidelines - or lack of them - leave investors open to abuse.

For example, directors of AIM companies do not have to list `spent' convictions. That means they may not have to declare criminal convictions for petty theft or minor fraud committed years ago. Directors going for a full listing have to reveal all convictions.

AIM directors have to detail other directorships held only in the past five years - potentially leaving investors unaware of past associations with disreputable organisations.

On top of that, some nominated advisers - known jokingly in the market as nomads - are tempted, inevitably, to look kindly on the companies they advise as they, rather than investors, provide the bulk of the nomads' income.

John Johnston of Scottish Amicable, a major investor in Memory, says: `AIM is great for companies, and even better for nominated advisers. But the investor protection angle has not been covered at all.'

The Stock Exchange rejects such criticism. David Owens for the Exchange says: `It's working very well. We set out to make it as easy as possible for companies to come to market and investors are being protected.

`The rules are operating well for companies and investors. If the trends change we will rethink. At the moment it's all fine.'

The Financial Services Act is supposed to be the safety net to ensure that a promoter does not plunder investors' money.

But in many cases, say critics, it has scared the innocent and made the guilty more scheming.

Stockbrokers can be reluctant to advise on an AIM share because tomorrow the company may go bust, and investigators from the Securities and Futures Authority or the Securities and Investments Board come knocking.

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