Amaya Investigation Continues, But Details Remains Few And Far Between
Online Poker Report

Amaya Trading Investigation: New Details Emerge, But Larger Picture Remains Incomplete

Amaya's purchase of PokerStars
The Globe and Mail reported last week that Yoel Altman “has come under the scrutiny” of Quebec’s Autorité des marchés financiers (AMF) during the AMF’s investigation into trading around Amaya’s acquisition of Pokerstars.

Altman is described by the Globe and Mail as a “close friend” of Amaya CEO David Baazov and someone who “wore a number of hats as an outside consultant” to the company. The report notes that “[t]here has been no indication from FINRA or the AMF of any wrongdoing by Mr. Altman”.

The report does not appear to represent any new development, but rather additional information regarding the launch of the AMF inquiry in December 2014.

In addition to the AMF investigation, the Financial Industry Regulatory Authority (FINRA) is also understood to be examining trading in Amaya leading up to the PokerStars acquisition.

Bevy of public information creates high investigative hurdle

Before diving into what we know about the AMF and FINRA investigations, two things are worth noting:

  1. The common characterization of Amaya’s stock having “more than doubled” in advance of the announcement is technically correct but reductionary to the point of being misleading. A more accurate range of the movement driven by the acquisition speculation would be from $8 to $12.
  2. The movement of Amaya’s stock during the period in question can be tracked reasonably tightly to publicly-available information.

The chart below (click for a larger version) illustrates both points. Annotations follow.

Amaya PokerStars acquisition stock chart

  • April 1: Shares of Amaya – which had been trading in the $7-$9 range in the six months prior – nosedive on weaker-than-expected earnings.
  • April 16: Amaya begins to pull out from the bottom of $5.81 on news of gaming machine shipments.
  • May 2: Amaya rallies back above the $7 mark on news of New Jersey lab approval for Amaya slot titles.
  • May 15: Amaya reports reasonably strong earnings for 1Q14. The company also announces new credit facilities that give the company access to some $300mm in funds. Critically, the terms of the new credit provide the lenders with the ability to purchase up to 4 million shares of Amaya at CAD$15 per share – even though the stock is trading at around CAD$8 at the time.
  • May 16: During an earnings call, Amaya executives make several comments suggesting a major acquisition is a possibility (more on that below).
  • May 20: A widely-cited research note suggests that Amaya is considering a significant poker acquisition.
  • May 23: The first speculation of the PokerStars purchase appears on Stockhouse: “has anyone heard the rumour Amaya may be buying PokerStars.net…someone I know high up at a major brokerage firmy mentioned this to me the other day…could this be what’s behind the sudden move…any thoughts?”
  • May 24: CalvinAyre.com – a site regarded as well-connected within the global online gambling industry – publishes the first article speculating that Amaya was angling for a PokerStars takeover.
  • May 26: Amaya publicly addresses the stock surge and acquisition rumors.
  • June 12: Bloomberg reports that Amaya is “near an agreement” for PokerStars prior to markets closing.
  • June 12: Amaya announces the PokerStars acquisition after markets close.

Connecting the dots

Looking back at the activity starting with the earnings release on May 15, it’s relatively easy to see how someone paying attention could connect the dots to a major acquisition.

And while those dots may not have led to PokerStars directly, (i) there are only so many major online poker platforms available and, (ii) any major acquisition would reasonably have been expected to spark upward interest in Amaya.

As for those dots: They start on the 15th when Amaya announces that they’ve opened up new credit facilities that brings the total they can draw to north of $300mm.

That’s a large pile of cash for a company whose market cap at the time was something in the neighborhood of $500m.

And part of the financing agreement for the new debt involves Amaya granting the lender 4 million share warrants at CAD$15 – nearly double the price of AYA on the day the debt deal was announced.

On the next day’s earnings call, Amaya executives are asked by two separate analysts about the motivation for amassing such a large war chest. Note that both analysts speak of the acquisition as a given:

Eyal: Okay, good. Obviously, you’ve expanded your capacity. It’s fairly significant, between the amount of cash you have on the books and the actual debt facilities you’ve announced last night. Is there any more you can say outside of just saying it’s strategic acquisitions? It seems like it’s a fairly sizeable amount. You have capacity for north of $300 million of cash at this point.

David Baazov (Amaya CEO): All I’d really comment is the reality is at this time, we are bolstering the balance sheet. Historically, we’ve grown via organic growth as well as via acquisition. As I stated on the call, we are looking at this from a strategic perspective.

[…]

Ralph: Okay. Again, to the extent you can give some color, on the strategic acquisition, are you going to be looking at increasing your footprint in Europe? Is it going to be land-based and/or interactive?

David: I would just say that our focus is interactive and it’s global.

Robert: No, the 4 million warrants that are provided alongside the mezzanine debt.

Daniel Sebag (Amaya CFO): It’s part of the overall return negotiated between the lender and the borrower.

And Baazov’s opening remarks can be read – at least in hindsight – as a clear preview that a major acquisition was in the works:

Finally, yesterday, we announced the debt refinancing, adding additional cash to our balance sheet for working capital and corporate purposes. We believe we are now very well positioned to execute on strategic initiatives, including supporting our organic growth, and we also have the flexibility to capitalize on strategic acquisition opportunities that may arise.

Acquisitions have been an integral part of our strategy since 2011. However, we are selective. At this time, we would really be examining opportunities that would significantly bolster our solutions offering while providing value to our shareholders.

During the first quarter, we announced the hiring of Marlon Goldstein as our new Executive Vice President of Corporate Development and general counsel. Marlon was a principal shareholder in the corporate and securities practice at the international law firm of Greenberg Traurig, where he was co-chair of its gaming practice and was focused on corporate and securities matters, including mergers and acquisitions, securities offerings, and financing transactions.

Connect …

  • large amount of ready cash with
  • A company that has grown almost exclusively through acquisitions, and
  • A major lender that wants Amaya share warrants at nearly double the current share price

… and it’s not hard for a picture of a transformative acquisition to emerge by May 16 based completely on publicly-available information.

What’s known about FINRA’s Amaya investigation

According to a report in The Globe and Mail on February 10, the Financial Industry Regulatory Authority (FINRA) is interested in what relationship, if any, existed between Amaya and some 300 investors who booked handsome profits following Amaya’s blockbuster acquisition of PokerStars last summer.

FINRA is not a government agency, but a private self-regulatory body established by the U.S. financial industry.

The Globe and Mail reported that FINRA contacted Amaya in December 2013 with a request for information regarding the company’s connection to a number of investors who took a position in Amaya in advance of the acquisition.

FINRA did not comment for the Globe and Mail story.

The Globe and Mail did not appear to have directly reviewed the request, instead referring to sources who had “read the document” and “people familiar with the request.”

It’s unclear who provided the information to the Globe and Mail and why they chose this point in time – some two months after the request was made – to move the story forward.

The inquiry by FINRA is not directly connected to or coordinated with an ongoing investigation being conducted by Quebec’s AMF, although both are broadly centered around the acquisition of PokerStars.

What’s known about the AMF investigation

The investigation timeline

  • December 10 (time unknown): Agents from the AMF, accompanied by the RCMP, visit the offices of AmayaCanaccord Genuity and Manulife Financial. All three offices are searched. AMF officials reportedly requested and received a list of trading activity from Canaccord.
  • December 11, 7:13 PM EST: Forbes publishes the first known report of the incident. This report became the primary source for most subsequent reporting.
  • December 11, 10:47 EST: Amaya releases a statement on the Forbes report.
  • February 11: The Globe and Mail reports that the AMF is “examining the trading activities of the Manulife brokers and their family members at the branch in Dorval, which is west of Montreal.”
  • February 17: The Globe and Mail reports that an alert from Manulife to the AMF about trading in Amaya by a group of Manulife brokers is “believed to have prompted the AMF” to launch the investigation.
  • March 6: The Globe and Mail reports that the warrant served to Amaya by the AMF in December “included a request for records of communications and business dealings with the company’s long-time adviser Yoel Altman,” citing “people familiar with the investigation” and noting that “[t]here has been no indication from FINRA or the AMF of any wrongdoing by Mr. Altman or the other investors.”

Public statements from Amaya and other relevant parties

Amaya statements

Statement released following the Forbes report

“To provide clarification on a media report, Amaya Inc. (the “Corporation”) (TSX: AYA) confirmed that the Corporation and its officers are cooperating with the Autorité des marchés financiers, the securities regulatory authority in the Province of Quebec (the “AMF”), in an investigation with regards to trading activities in Amaya securities surrounding the Corporation’s acquisition of Oldford Group in 2014. (Dec 11)

To the Corporation’s knowledge, this does not involve any allegations of wrongdoing by the Corporation. Amaya will continue to cooperate, if and as requested, consistent with our practice to always cooperate with regulatory authorities.

The Corporation will continue to monitor the investigation if and as it proceeds. The investigation has had no impact on Amaya’s business operations, employees or companies.” (Dec 11)

Original statement to Forbes from Amaya spokesperson Eric Hollreiser

“Amaya is cooperating in an investigation by the Autorité des Marchés financiers (AMF), the securities regulatory authority in the Province of Quebec. It is not appropriate for us to provide any further details at this time.” (Dec 11)

Comments from CEO David Baazov

“I would say that the investigation for us is something that we anticipated given that there was a historical stock run-up in advance. I think the AMF is looking into something that they should be looking into and looking into what has led to that stock run-up,” Baazov said.

“We have no evidence to believe that there’s any wrongdoing by any officer, director, or employees and we’re cooperating with the investigation.” (BNN, Jan 17)

Intertain statement 

“Intertain Group Limited (“IT-T”, “Intertain” or the “Company”) feels it is necessary to comment on the trading activity in its common shares today. The Company became aware through news reports of the investigation by the Autorité des marchés financiers (AMF), Quebec’s securities regulatory authority, regarding certain trading activities of Amaya Gaming Group Inc. Intertain stated today that it is not aware of any connections to Intertain of the investigation and it has not been contacted by any security regulatory or law enforcement authority.” (Dec 12)

Statement from Manulife Financial

“We are aware of the actions taken yesterday by the AMF and RCMP and are fully cooperating with this investigation.” (Forbes, Dec 11).

Statement from Canaccord

“We’re cooperating fully with the routine request for information.” – Canaccord spokesperson Scott Davidson (Star, Dec 12).

“I can assure you that Canaccord Genuity is not the subject of this investigation, nor is any member of our capital markets group […] This is strictly a request for information related to individual trades in our client accounts.” – Chief Executive Officer Paul Reynolds (Montreal Gazette, Dec 15).

Statement from the AMF

“Yesterday’s operation is part of a AMF investigation on that company. I can’t go further for the moment.” – AMF spokesperson Sylvain Théberge (Forbes, Dec 11).

“This search was part of a wider investigation on which we have no further comment,” – AMF spokesperson Sylvain Théberge (La Presse, Dec 12).

When is a raid not a raid?

The Forbes story (and Forbes’ subsequent follow up) both originally referred to the action as a “raid.”

But that description was subsequently removed from both stories, replaced by “showed up” and “investigation.”

That change, along with the gaps between the event and the first report and that report and Amaya’s statement, all suggest a far less aggressive action on the part of authorities than “raid” might bring to mind for the typical reader.

A source inside Canaccord characterized the action as “fairly routine” and a part of “almost every major transaction” to BNN reporter Amber Kanwar.

As for the presence of the RCMP, the agency told the Toronto Star that “it simply provided security for the AMF, rejecting the characterization of its involvement as a raid.”

Immediate impact on stock prices

Amaya stock plummeted on news. On the day following the news (Dec 13), Amaya opened down sharply, followed by a quick – but only partial – recovery. As of close on Dec 13, the stock was off some 18% from the day’s opening price.

Intertain shares tumbled in tandem. Intertain was not named in connection with the investigation.

But the company – part-owned by Amaya – saw its stock price shrink over 25%, apparently in reaction to the news. Manulife also holds a significant position in Intertain.

Intertain subsequently released a statement saying in part that “it is not aware of any connections to Intertain of the investigation and it has not been contacted by any security regulatory or law enforcement authority.”

Canaccord, Manulife took smaller dips. Canaccord shaved off nearly 16% on the news, while Manulife dipped down just under 3%.

Patrick Horan of Agilith Capital told Advisor.ca that “I don’t think there’s a lot at risk for either company,” reasoning that a few individuals within the companies will be the ultimate targets of investigators.

Connections between the companies

How are Amaya and Canaccord connected? Canaccord played a number of roles in Amaya’s purchase of PokerStars.

How are Amaya and Manulife connected? As of Sept 30, 2014, Manulife owned a ~.6% stake in Amaya.

Both Manulife and Amaya hold material positions in Intertain.

How are Manulife and Canaccord connected? William J EeuwesSenior Vice President and Global Head, Private Equity at Manulife, is on the Board of Directors at Canaccord.

Amaya Trading Investigation: New Details Emerge, But Larger Picture Remains Incomplete
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Chris Grove
Chris Grove - Chris is the publisher of OnlinePokerReport.com. Grove also serves as a consultant to various stakeholders in the regulated market for online gambling in the United States.