The founder and largest shareholder of electronic money provider iSignthis Ltd believes a public row over disclosure and governance won’t upend his company’s bid for a local banking licence.
In a telephone interview from iSignthis’ regional office in Cyprus on Tuesday, chief executive John Karantzis dismissed the possibility that a negative assessment last week from corporate governance adviser, Ownership Matters, had imperilled the company’s growth plans in Australia.
The bleak report on the company’s governance record last week triggered a 40 per cent meltdown in the share price, bringing a five month rally to an abrupt end.
Ownership Matters questioned the adequacy of revenue benchmarks used in 2018 before Karantzis and other iSignthis executives exercised their rights to shares now worth more than A$300 million.
The report, which was co-authored by OM director Dean Paatsch, also alleged that disclosure of directors’ share interests was “opaque” and that the company had not adequately explained the sources of its revenue growth in 2018.
Mr Karantzis last night panned the OM assessments, saying that he and the company “had nothing to hide”.
“All that Ownership Matters did was distract management for a few days and demolish some retail investors’ holdings,” he told Banking Day.
“We’ve disclosed everything fully to regulators and we have nothing to hide.
“There’s nothing that Ownership Matters has said that would impact the licensing application made to APRA.”
The negative report has landed at a sensitive moment for iSignthis, which has applied for a special ADI licence from APRA and additional licensing approvals from the Reserve Bank of Australia.
In a statement to the ASX on Tuesday, iSignthis said that the OM report “contained numerous statements which were false, materially misleading and/or misleading or deceptive”.
The company also said it was “considering its various options” after writing to Ownership Matters seeking clarification about allegations made in the report.
When asked whether legal action might be one of the company’s options, Karantzis said:
“I can’t say at this stage. I will say we are in communications with ASIC and that is being handled by our lawyers.”
Ownership Matters declined an interview request from Banking Day, but a spokesperson responded to iSignthis’ ASX filing with the following comment.
“Our report relied on the company’s public disclosures. It’s not unusual in our line of work for issues we raise to be characterised as factual inaccuracies.”
Karantzis rejected the suggestion that directors had not fully disclosed their interests in the company.
Mystery surrounds the identity of investors behind an offshore firm known as Red 5 Solutions that holds more than 10 per cent of iSignthis.
ASX filings show that Red 5 Solutions has a registered address in the British Virgin Islands that is identical to the addresses of investment vehicles through which Karantzis and several other directors hold shares in iSignthis.
Karantzis refused to name the investors involved in Red 5 Solutions.
“The only legal obligation I have is to ensure all the directors have disclosed their interests which they have done,” he said.
Karantzis also ruled out the possibility that he or other directors might be a related party – under the Corporations Act - to Red 5 Solutions.
The OM report alleged that iSignthis had provided limited disclosure on what drove a revenue surge in 2018 that allowed Karantzis and other executives to exercise all of their share rights.
Karantzis said the revenue disclosures were carefully assessed by the company’s auditors.
“Obviously, the auditors took a hard look at revenue because of the performance rights and made sure it was properly audited,” he said.
“What Ownership Matters fails to understand is that all of our revenues haven’t come out of thin air.”
iSignthis currently generates most of its operating income from providing identity verification and payments processing to financial trading sites across Europe.
Clients using the iSignthis platform include French payments giant Worldline, Cyprus-based broking service, Windsor Brokers and CFD platforms trading.com and cmtrading.com.
The company is authorised to operate in the European Economic Area through a licence issued by the Central Bank of Cyprus.