Nomads will next Tuesday be trekking along the south bank of the Thames to the annual conference hosted by Lawrence Graham, the law firm, at its headquarters in the More London development.

The programme for nomads – the nominated advisers that bring companies to the Alternative Investment Market – includes a session entitled “Mad and bad – market abuse and disclosing bad news”. This week provided a perfect case study of bad news when the London Stock Exchange publicly censured Astaire Securities and fined it £225,000 over the flotation of Worthington Nicholls, the air conditioning specialist.

The disciplinary notice on Astaire runs to nine pages and cites breaches of Aim rules between June 2006 and November 2007. In essence the firm failed in its duties to the exchange to assess Worthington’s appropriateness for Aim at admission and to advise the company appropriately before and after it joined.

Worthington was brought to market in the summer of 2006 by Corporate Synergy, which later metamorphosed into Blue Oar Securities, now known as Astaire. The shares collapsed in 2007, and the company brought in new management and changed its name to Managed Support Services.

Last week MSS said in its preliminary results it was suing HW Corporate Finance and HWCA, its auditors until November 2007. It is claiming £25m on the alleged grounds that the profits were overstated in the prospectus.

HWCA was unavailable for comment, but the outcome of the claim is unlikely to be known for some time. Meanwhile, the Serious Fraud Office investigation into the circumstances surrounding the flotation continues, but no charges have been made.

The only other nomad to be fined and publicly censured was Nabarro Wells in October 2007. The LSE found six examples of failure to undertake the necessary level of due diligence on companies it was bringing to Aim in 2005 and earlier.

One of the companies it brought to market in 2003 was Crown Corporation, which became Langbar, the cash shell from which £365m disappeared in one of the biggest stock exchange frauds, still under investigation by the SFO.

Nabarro’s punishment already looks like ancient history. The Astaire case may well come to be seen in a similar light by the time all litigation connected to Worthington has ceased. Aim is often criticised for its light regulation, but against such a background it appears to have lightning reactions.

An interesting target

Astaire co-operated fully with the LSE investigation, and accepts the findings. It is a very different beast from its 2006 incarnation, although by a quirk of fate Edward Vandyk, who headed Corporate Synergy (but not the securities arm) until March 2007, is now head of Astaire Group. He is keen to see further consolidation among the nomads, hence the offer for Dowgate Capital, launched on the day the public censure was announced.

Dowgate makes an interesting target. When it was City Financial Associates, it brought Mobestar to market in April 2006. The company was to provide a mobile video dating service for the networks, and to sell content to third parties.

But its projected revenues were wildly optimistic, and within weeks of flotation the shares fell sharply. Last year it failed to raise further funds, and the appointment of administrators followed.

It looks a clear example of a company that should never have been brought to Aim. The market this year has cleared a lot of stragglers, and the total quoted has fallen to 1,431 from the peak of 1,700.

The number of nomads is also in decline. It has fallen by 20 in just over two years, and now stands at 64. Azhic Basirov, head of capital markets at Smith & Williamson, expects the number to halve in the next few years. That view may be pessimistic. But the nomads have been squeezed on two fronts. First, companies such as Worthington Nicholls and Mobestar have underlined the need for exacting due diligence. Investors are looking only for quality, and the number of companies coming to Aim is unlikely to return to the level seen in the boom years.

Second, the LSE rulebook for nomads, introduced in February 2007, has increased costs at the same time as clients are looking to make savings. Retention fees are unlikely to be sufficient. But if Astaire succeeds in buying Dowgate, it will double its retained clients to more than 60, and raise its chances of carrying out more profitable transactions.

One firm is looking to become a nomad on Aim Italia. Noble believes the Italian version of the junior market is on the verge of attracting a raft of companies that have hitherto not considered equity finance. As no Italian would say, it looks like déjà vu all over again.

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