Some have called it the Wild West – and not without some justification. Lax rules, scores of little-understood firms and a handful of famous scandals scattered through its history have left the Alternative Investment Market nursing something of a reputation as a minefield for investors.
But the market, which turns 20 this year, has also led to some of the most successful growth stories of recent times – as well as providing more than 1000 businesses with access to funds they might have otherwise struggled to raise.
Asos, the online clothing firm, entered the stock market in 2001 and has since grown by more than 15,000 per cent to become the largest group on AIM.
Despite once being the equivalent value of a FTSE 100 firm, the company has remained on the junior market.
And in spite of overtures that it could move to a main listing, the retailer has yet to make any firm moves away from the market. With the rules changed in August 2013 to allow investors to put AIM shares in their ISAs, interest in the market has boomed.
Supporters of the AIM model – and there are many – say that the market is a petri dish for nippers that want to grow.
Rules for listing on the main market are complex and tricky for smaller companies to get entangled with. AIM, by contrast, is far less hands on, allowing entrepreneurial minds to flourish without being strangled by regulation.
Without it, many companies would have turned to the US, where entrepreneurialism is more encouraged, or run into the arms of venture capital backers – or simply failed to grow.
Companies that want to float are required to team up with a broker – called a nominated adviser – who will guide them through the rules and also act as a backstop of credibility to assure investors that their money is not falling into the coffers of cowboys.
But, as in any arena where the sheriffs are seen to be easygoing, cowboys do occasionally ride into town. A number of card wreckers over its history have cast AIM in a poor light.
Most recently, Quindell has thrown a shadow over the market. Aside from a particularly embarrassing recent bungle, which saw a bean-counter forget that the firm was selling two of its businesses, there have been more worrying allegations about the company.
Late last year, the company’s founder and chairman Rob Terry sold millions of pounds of shares despite sitting on the knowledge that one of the company’s joint brokers had resigned almost a month earlier.
When the information that Canaccord – whose name had lent Quindell authority within the City – had quit became public, shares fell by more than 20 per cent in a single day. Terry left the firm very shortly after – only to sell the remainder of his holdings in the following weeks.
In all he walked away from the company with more than £15m, despite having watched the shares fall by more than 90 per cent during his final 12 months at the firm.
It is chains of events such as this that have attracted criticism of AIM and the way that it is regulated. During the month-long debacle, both the Financial Conduct Authority and the London Stock Exchange – which is directly in charge of regulating AIM – were lambasted for failing to step in.
It is still not known whether either body has opened an investigation into the affair, despite receiving numerous calls from retail shareholders who had lost more than half their investment.
But Quindell is only the most recent such company to court controversy.
The most famous case is Langbar International – a company whose scale of fraud was so great it was once branded ‘the greatest stock market heist of all time’.
The Bermudan cash shell collapsed in 2005 after claiming it could not locate its bank deposits.
A six-year investigation followed, during which it transpired that investors had been ripped off to the tune of £100m.
In reality, the company had no money and had signed off certificates itself saying that it had funds held in a Brazilian bank.
It then unveiled a host of public contracts it had won in Argentina – even though local Argentine media had never reported these.
Investors, located more than 7000 miles away in London, were none the wiser.
When the scheme, which by then claimed to be sitting on reserves of up to £500m, was rumbled, it emerged that even the then-chief executive Stuart Pearson had been partly hoodwinked by Brazilian masterminds.
After being found guilty of issuing misleading statements to the market, Pearson was jailed for a year in 2011, and banned from being a company director for five.
The only company to be fined after the debacle was the company’s Nomad adviser Nabarro Wells. Once the scandal was exposed, AIM rules were tightened after the Serious Fraud Office described the case as ‘fraud on a grand scale’.
But there is still nothing to stop directors whose companies were involved in former debacles from returning to business.
Although he was never implicated in the Langbar scandal, Nabarro’s former director Keith Smith recently emerged as the chairman of Retail Acquisitions, the little-known outfit responsible for buying BHS.
Langbar is not the only firm to have had its wrists slapped. Regal Petroleum was censured after misleading the market about its Greek oil interests
The now-defunct AIM Disciplinary Committee subsequently said there had been ‘a systematic pattern of conduct evidencing reckless disregard for the rules’.
But the question still remains: is a growth market worth the price of a few rogue operators?
The only thing is certain – as it prepares to pop the champagne corks to celebrate its 20th birthday, there are concerns that London’s junior market still has a lot of growing up to do.