Paysafe battered by short-seller report

(ShareCast News) - Digital payment systems provider Paysafe tumbled on Tuesday, with traders pointing to a note by anonymous short seller Spotlight Research, which highlighted material risks from regulatory enforcement action.Paysafe released a statement in response to the share price slump, saying all material information in the report "is either factually inaccurate or has been previously disclosed"."The group has a history of significant, transparent disclosure to the market, publishing two prospectuses in 2015 and being subject to substantial additional scrutiny through a full UKLA listing process as part of its move to the Main Market of the London Stock Exchange."The short seller pointed out that Paysafe's largest customer, most likely to be Bet365 and which represents around 50% of its earnings, is operating a business that appears to facilitate and engage in illegal gambling.Paysafe does not disclose that Gibraltar-based gambling company Bet365 is its largest customer in company filings but Spotlight said multiple checks with analysts who follow the stock confirm it is most likely to be the unnamed large customer mentioned in the group's filings.Spotlight reckons Bet365 is running a gambling website catering to Chinese customers and said this would likely be considered illegal and could be used to evade Chinese capital controls.It pointed out that a big chunk of Bet365's revenue is generated in China, where gambling is explicitly illegal."Paysafe appears to be enabling both illegal gambling and Chinese capital control evasion through undisclosed related parties run by recent former executives," it said."Paysafe is headquartered and listed in the UK and may face risk of criminal prosecution and sanctions by the Financial Conduct Authority, while the Chinese business (an estimated 50%+ of earnings) may be at risk of being shut down by Chinese authorities."Spotlight said recent Chinese court cases may link a recent former Paysafe executive, an alleged undisclosed related party, likely customer Bet365, and by implication, Paysafe itself, together in an illegal gambling ring.In addition, Spotlight Research said the remainder of Paysafe's voucher card business is at risk from new EU anti-money laundering regulations that are likely to come into force in 2017 and may eliminate anonymous payments, which it believes to be the core value proposition of the voucher and card business."We believe that many other red flags exist, including potentially aggressive accounting that obfuscates the true earnings power and free cash flow generation potential."On Monday, the company's chief financial officer, Brian McArthur-Muscroft exercised options over 516,844 ordinary shares at 0.01p each in respect of the awards granted to him under the long-term incentive plan.He sold 243,778 shares on the open market at 371.85p each to satisfy tax and national insurance obligations and the option cost of the exercise.At 1240 GMT, Paysafe shares were down 15% to 313.78p.