New scandal brewing at Sports Direct over share allegations

Sports Direct’s annus horribilis continued last night when it emerged that a US banking giant had resigned as adviser to the Shirebrook-based firm in 2012 over irregular share deals.

Bank of America Merrill Lynch has quit over concerns that Sports Direct has manipulated its share price, according to reports. The Bank had concerns around Sports Direct’s corporate governance and the “propriety” of its share transactions in 2012 concerning its employee bonus scheme, according to claims made in a high court document by Jeff Blue – previously a close Mike Ashley ally.

Blue is Sports Direct’s former strategic development director and has worked for Merrill Lynch as a banker. He is currently suing Ashley for £14m claiming that he is owed a “15m bonus after the company’s share price rose above 800p. Blue resigned from Sports Direct last year.

He is reported as alleging that Merrill Lynch resigned as corporate broker to Sports Direct in the autumn of 2012 because of share purchases that breached financial regulations. Apparently, the bank was concerned that Sports Direct has funded a £20m share buyback from workers who had been awarded the shares as a bonus payment and were set to cash them in. City rules say that companies must notify the market if they want to buy their own shares.

In legal documents Blue claims: “In autumn 2012, Merrill Lynch withdrew from acting as Sports Direct’s corporate broker. Merrill Lynch did so as a result of concerns that it had regarding Sports Direct’s corporate governance, including the propriety of Sport Direct’s decision in August 2012 to fund the Sports Direct Employee Benefit Trust to buy-back shares for the benefit of Sports Direct’s employee share scheme, without complying with the Buy-back and Stabilisation Regulation as would ordinarily be required by a buy-back of shares by the Sports Direct itself.”

The Financial Conduct Authority says it is aware of the allegations. Sports Direct neglected to mention Merrill Lynch’s resignation until it confirmed Espirito Santo and Oriel Securities as its joint corporate brokers in a statement in February 2013.