Morning Mumble: PLUS500, A special side order of numerical confusion, where have they all gone?!?!? Potential US Liabilities? & Add-On...

Good Morning,

In March Trading Update PLUS500 (PLUS) had 67,667 active customers but as of close of business on Monday, 8 June  PLUS today announce they have had approximately 23,000 customers log into their account since May 18.

Where have the “other” 44,667 ‘active customers’ that one assumes appear relaxed and happy not to “log in” to their PLUS500 account since the 18th May (and suspicions are earlier than this date based on PLUS500’s Facebook account). In essence, 66% of PLUS’s customers have not logged into their account for 3 weeks.

Of the ones that have “logged into their account since May 18”, only 10,147 of the 23,000 (just over 44%) have “completed the remedial AML procedures." We’ll call the remedial AML Procedures RAMLP. Out of the 67,667 active customers, only 10,147 customers had completed the RAMLP, why have the “other active customers not completed the procedure?!?!”

Of the 10,147 that have completed the RAMLP (just under 15% of PLUS’s total ‘active’ customers from March), 8,457 customer accounts have now been fully reviewed by the remediation team and unfrozen, thereby enabling those customers to trade and to deposit and withdraw funds.

Out of the active client base that are now free to trade, 5,205 have resumed trading (61% of the approved RAMLP or ) and 457 have cashed out all their funds (5% of the approved RAMLP). PLUS have omitted to mention what turnover or revenue they are gaining from the 5,205 customers (or 7.5% of the total active customer base from March) that have resumed trading. 

What are the 1795 of “approved” customers that have not resumed trading nor cashed out doing? After 3 weeks? More importantly, what of the combined 92% or 62,253 (approx) customers, that are either not logging in, not completing RAMLP nor trading. 

Playtech (PTEC) would be wise to raises questions about the activity of a customer base that doesn’t log in for 3+ weeks. What has happened to a massive 66% of the customers that “were reported as active” at the end of March, but now only 5205. 

If there have only been 23,000 customers logging into their account since 18th May, what is PLUS’s real churn rate? Please note, since the 18th May, no new customers have been onboarded (assuming correct). Then the churn rate is massive if one assumes that 44K+ would have been a casualty of losses/churn.

What of those clients that may be domicile in the US that would have been prevented from trading assuming AML was in place. What are the implications for PLUS/PTEC, whom are not unknown to such issues. 

Have PLUS got any US liabilities in light of what could be deemed a weak/poor client onboarding process? Based on today’s figures and the desire to complete by September 2015, is the deal already looking wobbly and does the RNS today infer a Material Adverse Effect (MAE) based on the numbers that do or don’t log in and those that are active?

Applying make-up to a pig, doesn’t change the facts. PTEC would be wise to look at the “customer withdrawals prior to the anti-money laundering procedures (review/remedial action) took place.” There is some speculation about a “mass” exodus prior to ‘the implementation of the ‘RAMLP.’

Atb Fraser

Add-On: 14:04: As a result of the Financial Conduct Authority review/recommendations, one assumes that Cyprus Securities and Exchange Commission and Australian Securities and Investments Commission will have to commence a review the onboard processes (if not already).

In light of the transferring of accounts out of the PLUS500UK to Cyprus that have been alleged to have happened, it raises the question of legality. To be able to transfer an account out of PLUS500UK means the client should already comply with the FCA AML procedures before a transfer can take place.  Although it’s suggested this is on an opt-in or out basis, where if one declines the transfer, then AML documents have to be resubmitted. Cyprus will no doubt be raising questions about this process/policy anyway.

Admittedly, not expanded on from this morning is the split between operations or countries and/or entities in terms of active numbers. PLUS do not separate where the revenue derives from nor what the split to each entity is. One has assumed the majority (92+ %) revenues have been affected by the client on boarding issues.

Opportunity research has shown that customers in Holland, Spain, Taiwan, Israel, Belgium, Denmark, Germany, UK, Finland, Bulgaria, Ireland (Dublin), Italy, Sweden, Venezuela, Portugal and US, have all reported they have had their accounts suspended at various times pending ‘verification’ or ‘other issues’. More so, even when they believe or disclose they are verified the customer discloses they are unable to trade, add or withdraw monies. It’s acknowledged the reported location and actual location may differ from Facebook. However, there is little to assess the implications as the update is vague to say the least. 

There are a number of assumptions on the basis of churn and a lack of new customers, which suggests the last disclosed active customer base figures of 67,667 is more accurate as the total. Simply put, no onboarding has taken place, at least in PLUS500UK entity and one suspects in most western regulated markets for some of that time. Or at best, with increased onboarding protocols slowing down customer revenues/spend and also perhaps deterring the "instant" revenue the previous procedure "was more friendly towards."

In reconsidering the figures for today, the significance is that only 10,147 customers that have completed the remedial AML procedures (RAMLP) and only 83% (8,457) of these are approved and 50% (5,205) of the RAMLP utilising the approval to then trade. If one was to read this across to other active operations, there's a possible range of clients between 41K and 20K (currently). Whether this improves is another question, PTEC/PLUS seem to think so (Oh and ODEY).

The overall total number trading is of more significance than any total active customer numbers. What is absent is the number of suspended accounts outside of the UK that have appeared on Plus500’s own social media. Research is suggesting that a significant proportion are being “re-verified”, causing disgruntlement.

The FT article by Dan (greater depth and consideration) Plus500 thaw update looks at the total breakdown from the total number of clients, 106,000 and the subsequent possibilities of the revenue split. There has been nothing to suggest that suspension and the subsequent repercussions have not happened in other countries. More so statements to the contrary, as per Facebook validation of disgruntled customers stating their account has been suspended etc…including trend monitoring services and twitter. 

It would be risky to assume that the split between frozen/suspended accounts (pending verification) and those specifically relating to PLUS500UK is at the lower end or differs from some form of “global re-onboarding process.” Evidence so far, admittedly by opportunity sample*, is suggesting the scale of the problem is greater than what PLUS have disclosed today in their limited release today. Thus the lack of clarity about trading and operations ‘outside’ of PLUS500UK.

Allowing for 50% of the revenue being derived from the UK operations, the reporting factor is suggesting that ex-UK operations are also affected to some degree. Contradictory factors, in the preliminary results, where “the majority of revenue is made up of UK and Western EU countries.” One should consider the impact of suspension on the EX-UK revenues as well. PLUS stated when the issues came to light that c.45% of Plus500UK's customers have passed Plus500's electronic verification process and are therefore allowed to trade, which contradicts today’s announcement.

The question still remains, what constitutes a Material Adverse Effect for PTEC. 

Atb Fraser

*Admittedly opportunity sampling around negative events is down to emotional disclosure on social media, as the old adage goes about bad news travelling faster etc…