Intertain Group review finds “no basis for concern” over short-seller’s report

intertain-group-short-seller-report-reviewCanadian online gambling operator Intertain Group says an independent committee has refuted claims detailed in a report that caused Intertain’s shares to fall by one-third in December.

On Monday, Intertain issued a statement saying the committee it appointed in the wake of December’s stock sell-off had determined that the “principal claims” by the “self-described short seller” Spruce Point Capital Management were “false and misleading.”

Spruce Capital had taken issue with the future earning potential and allegedly unfunded earnout obligations of Intertain’s mainstay UK-facing online bingo acquisitions, including Jackpotjoy and Mandalay Media. The report also voiced concerns over the eagerness with which Intertain’s senior management paid itself handsome bonuses for identifying future acquisition targets.

Intertain’s committee, which consisted of non-management directors, says it engaged Voorheis & Co LLP and Stockwoods LLP to assist in the review, while Deloitte was retained as committee advisor.

The committee said it found “no basis for concern” with respect to the acquisitions and the continued performances of the bingo businesses, nor with the Vera&John online casino business, each of which “continues to meet, or exceed management’s expectations.”

The committee also stated that “no changes to Intertain’s previously disclosed financial statements are required” to address alleged accounting shenanigans spelled out in Spruce Capital’s report.

However, the committee said it had made recommendations for “changes and improvements” to address “inadequate documentation, approvals and record keeping in respect of certain payments previously made by Intertain that were recorded and fully expensed by it as transaction expenses in connection with its prior acquisitions.”

Among Spruce Capital’s complaints was Intertain’s Management Incentive Plan, which allowed CEO John Kennedy Fitzgerald (pictured, urging calm) and CFO Keith Laslop to collect fees equal to 2% of an acquisition target’s purchase price. Spruce Capital claimed the pair of execs were awarded C$17m in 2015 – 2% payable in cash – before shareholders noticed the payments in the company’s Q2 earnings report and raised a fuss.

If the committee’s findings were intended to give Intertain’s shares a boost, the plan failed abysmally. The company’s share price fell 9.5% on Monday to C$7.77, its lowest point to date this year, and lower than the $7.98 bottom it hit following the December plunge.

In January, the company attempted to change the narrative by informing shareholders that it expected Q4 and FY15 revenue and profits to come in above previously reported guidance. Intertain will report its official numbers on March 15.