We print today’s blog by Tom Winnifrith and believe that this is a very important matter for the wider investing public. Regular readers here will know that we ourselves fought hard in the Plus Markets issue and the shocking situation that decimated shareholders there and, in recent weeks, have highlighted the misleading RNS’s from one Stephen Rudofsky of NEOS Resources. RNS’s that cost peole real money when they rely on them in good faith.

If Sefton Resources wins – proper financial journalism loses

Sefton Resources is an AIM listed company which I only encountered in the summer suggesting that the shares were ludicrously overvalued at north of 2p. The shares are now south of 1p and yesterday it issued an RNS saying that it was suing me for libel and reporting me to the FSA for a breach of the FSMA of 2000. Whatever.

It’s contention is that I have accused it of misleading investors and lying and it cites several articles where I have, allegedly, done this.  If it could prove that this allegation is without basis that would be libel. I am not sure where the FSMA comes into it since I have no position in Sefton but I think that there is a clause in there about knowingly disseminating false information.  There is just one flaw in Sefton’s reasoning…

A main bone of contention is my analysis of the interims released on September 11th 2012. And I quote from the piece that I wrote then and which I have no intention of withdrawing:

The interims stated:

Although oil production for the first half of 2012 at 21,755 barrels or an average of 120 barrels of oil per day (bopd) was higher than in the comparable period (19,968 barrels or an average of 110 bopd in 1H, 2011), there were several factors that served to restrict oil production.  Encouragingly, since this period ended we have seen production in excess of our targeted level of 200 bopd and average in the vicinity of 170 bopd over a limited period”

By 11th September the Sefton board must have been aware of what output was in July and August – something we also now know from official data from the State of California: viz 116 barrels per day in July and just under 97 barrels per day in August.  I suppose that it is possible to construct a scenario where some days production is greater than 200 bopd and for limited periods it averages over 170 bopd and still over a month averages 97 bopd. But that implies that for decent periods production is actually pretty close to bugger all bopd.  Perhaps the company might care to publish via an RNS its daily output statements for July and August to show how what it actually said was not deliberately misleading.


I wanted Sefton to clarify this and, to be fair, when pushed it did so at a public meeting on 9th October where it admitted that the data of 170-200 bopd referred to a few days at the start of July. The problem is that if it those were the numbers in those few days then to hit 116 bopd for the full month implies that for most of the rest of July output averaged c100 bopd. In August it was lower still. And Sefton knew that when issuing its RNS on 11th September in which it also stated that:

Workovers and cyclic steaming continue to deliver production growth

You will note the use of the word continue which makes it explicitly clear that there was production growth before September 11. But as we know now (and Sefton knew then), production pre September 11 was actually down on H1.

In the RNS, Sefton then discusses how it will boost production in the second half (from 120 bopd in H1).  If you read all of that would you have guessed that output in July and August was actually markedly down on H1?  On balance: yes or no?

For what it is worth H2 output averaged c112 bopd which is lower than in H1 ( 120 bopd). In January output fell to 109 bopd.

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And so my “crime” is merely to point out that the presentation of the production curve in the first two months of H2 was misleading. Reading the Sefton statement one would have thought that output was rising. It was in fact falling.

If misleading is not an apt description of that statement what is?

That RNS was crafted with care as Sefton needed to raise money by issuing shares (and did so) in the second half of 2012. The words were thus chosen very carefully.

Had Sefton said that “output in July fell to 116 bopd from 120 in H1 and again to 97 bopd in August but peak flows of 170-bopd over a few days showed what Sefton can deliver and we have a number of initiatives in place to push output higher” I could not have complained nor accused the company of issuing a misleading statement. But Sefton gave an alternative vision.

I look forward to asking a Jury in our libel trial if, reading the Sefton statement it thought that output had risen in the early part of H2? It is a simple question. If they think the answer is yes then I win the great trial. I am 100% sure that any reasonable man or woman will think that the answer is indeed yes. But Sefton knew that output had fallen sharply when making that statement.

I regard it as being in the interest of the share buying public that when a company publishes a statement as Sefton did on September 11th that it be subject to some critical analysis and issues such as this be highlighted. And that is the crux of what is going on here. This is not about Sefton versus me but about the way that public companies issue statements which allow investors to make a clear assessment of whether they should buy or sell a particular stock.

Sefton might regard me as an easy target to push aside. I am not universally loved. And I am not a wealthy man. But this is a wider issue. Push myself and Brokerman Daniel aside (who has also been served with papers) and you rather set the tone for writers going forward.

Any company will then use the Sefton precedent to try to shut down writers, be they be one man bloggers or journalists on the FT who dare to question an RNS which raises questions. I have today received expressions of support from a large number of folks who appreciate that point.

Meanwhile the FSA has a duty to stop misleading comment being made by both companies and by individuals. But it cannot monitor every RNS. Having folks like me around who, in a rather nerdy way, flag up issues when they occur actually assists the regulator. I was delighted to assist them with a company called 3DM which ended up getting two censures as a result of my efforts a few years ago (incidentally 3DM also made great play about reporting me to the regulator for my writings) and I would be delighted to have a chat now with the regulator about anything I have written on Sefton including the RNS release of 23rd November 2011 two weeks before a share placing. That release (as Sefton admitted in December 2011, post placing) was inaccurate in a material way.

I may be squashed in this process. But I have no intention of being squashed. I shall fight this all the way as I have a point to make. I have better things to do with my life but if this is to be my last battle in financial journalism then I have chosen my ground carefully and it is here that I make a stand.

The truth is that I am utterly tired of and bored by a system where companies can publish an RNS and expect a supine mainstream media to reprint it unquestioningly or (worse still) take the PR spin on it. For that is what happens today. I learned my trade as a writer partly from a great man called Clive Wolman who took no prisoners when he felt something needed exposing. We had great fun with a company called Proteus International. But Wolman moved on and such is the revolving door between mainstream financial journalism and highly paid PR jobs that there are few boat-rockers left in the game now.  And most of the boat rockers exist outside the mainstream press.

If the Courts and the FSA decide that a system they wish to operate is one where every RNS must simply be taken at face value, where PR spin sets the tone so be it. I shall at that point willingly stop writing about shares as that will be an acceptance of a system that is unacceptable and which I want no part of.

I shall then happily retire to a life of cooking in the restaurant, organising investor shows doing a bit of sub editing to pay the bills and writing about cooking, economics, soccer, film, politics and my cats.

Folks out there may not like me or my writings but do they really want a system where no critical comment can be made?  This is not about Sefton and me. This case – I guess it is now a case – has far wider implications.

I prepare for battle.