Shares of UK-based digital payments solutions provider Paysafe Group Plc (LON:PAYS
) closed 17.6% lower after dropping as much as 39.8% in less than two hours following an article claiming its involvement in illegal gambling. Spotlight Research, who is short Paysafe, released a 54-page report
, included in the article published on a popular US-investing-website, highlighting multiple potential reasons that can result in regulatory enforcement actions.
The research firm believes that Paysafe’s largest customer is bet365, which accounts for nearly 50% of its earnings. Spotlight said the betting company “appears to facilitate and engage in illegal gambling” through Paysafe’s e-wallet operations. The report emphasizes that a former Paysafe executive might face scrutiny under the ongoing Chinese crackdown on illegal gambling.
Spotlight believes the executive was operating the “allegedly illegal Asian Gateway business”, which Paysafe had claimed to have shut down on regulatory concerns. As per the report, the company had operated it for more than three years thereafter, before its former executive recently formed a new entity named Hamber Services to continue the same.
The report indicates towards a possibility of similar operation being run by Paysafe in other jurisdictions, including countries such as India, where gambling is illegal. Additionally, Spotlight highlighted Paysafe’s involvement in a 2007 money laundering scandal in the US, which caused company shares to plunge nearly 90%, heavy fines and prison-time for its few executives.
Paysafe said the claims made in the report are “either factually inaccurate
” or provide the existing public information released by the company. Paysafe claimed that its transparency is unquestionable, citing two detailed documents issued in 2015 and scrutiny faced by the company in the UKLA listing process, when it started trading on the main market of the London Stock Exchange.
While the response helped regain shares a lot of the lost ground, Paysafe must provide a detailed response to allay shareholders’ concerns. The company’s next trading update is due on 12 Janaury 2017, which might throw more light on concerns cited in Spotlight Research’s report.