October 7, 2022

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Finanstilsynet: Arctic Securities violated rules on capital requirements in connection with Emergy wind turbine company

Finanstilsynet: Arctic Securities violated rules on capital requirements in connection with Emergy wind turbine company

For several years, Arctic Securities has struggled with restricting a large stake in the company’s stock in crisis-stricken Emergy wind turbine company.

Finanstilsynet Friday morning published its findings following investigations by Arctic Securities:

“Finanstilsynet concluded in the report that the company had violated the rules on capital requirements by improperly allocating credits to clients for the trading portfolio, by incorrectly allocating futures contracts with clients in an unincorporated share of the trading portfolio and by failing to ensure proper valuation of the trading portfolio. Not included in the stake in the futures contract,” Finanstilsynet concluded.

Finanstilsynet wrote that the exposure in Emergy was at most 52 percent of the company’s secondary capital. The review gives the brokerage firm a deadline of July 31 to obtain all commitments under the 25 percent capital limit as soon as possible.

This means that Arctic Securities has just over a month to settle with store owner Trond Mohn. Owns shares of Emergy Futures contracts with Arctic Securities for 455 million NOK.

Finanstilsynet writes that the commitment in one futures contract has long been above the maximum large commitment of 25 percent of secondary capital.

Over several years, Arctic Securities rolled out futures contracts between NOK 50 and 57 per share in Emergy. The report states that the stock was adjusted to NOK 30 for the first time in the fourth quarter of 2021. At the end of 2021, the share price was reduced to NOK 5, the report notes.

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The audit writes that the company also violated the rules for prudent valuation for a long time.

Finanstilsynet carried out the review following several articles in DN about brokerage exposure at Emergy, the failed wind turbine company.

Neither Mads Syversen nor major contributor Trond Mohn responded to DN inquiries.

– Thank you for your inquiry. The issue is being handled by Mads Seversen, Chairman Inge Hansen of Arctic Securities wrote in a text message to DN.

“Another understanding of the rules”

Outgoing Arctic CEO Mads Syversen wrote in a press release that the brokerage received a letter from Finanstilsynet on June 22, and that they believe “Finanstilsynet has a different understanding of Arctic’s allocation of credits and futures for the trading portfolio than the company practices.”

We have acted consistently and transparently in allocating our commitments to the trading portfolio, and we believe that an understanding of the rules that were used was justified. Through our regular reports on capital adequacy and large commitments, Finanstilsynet has been aware every quarter of the longstanding Arctic practice of assigning commitments to a trading portfolio, Seversen says and adds:

– We take note of the rule that Finanstilsynet understands in the letter, and we will adhere to this in the future when allocating liabilities arising from commercial activities where the Arctic is an intermediary.

On Pentecost DN discusses Arctic Securities’ recent annual accounts. It showed an increase in turnover and pre-tax profit of NOK 412 million last year, up from NOK 333 million in 2020. However, it also showed that Arctic cut its investment in crisis-ridden wind turbine company Emergy by 107. Millions of Norwegian kroner.

In the press release, Syversen also criticized media coverage of Emergy’s wind turbine company Arctic Securities’ exposure, which recently changed its name to ERH.

We note that Finanstilsynet found no reason to address the allegations and insinuations in this media coverage when they thoroughly investigated all the matters discussed. This shows that media coverage was based on false assumptions and speculation, Severson said.

Emergy’s nightmare

Emergy, formerly known as NBT, was among the first clients of Arctic Securities when the brokerage began about 15 years ago. The relationship with customers has been a nightmare for Arctic, which is struggling to get investors to invest money in the wind turbine company. Instead, the Arctic itself ended up with stocks and bonds in Emergy.

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But securities regulations place limits on how much a brokerage firm can own in a single company — the maximum is 25 percent of the secondary capital of a brokerage firm. The Arctic has struggled to keep its energy exposure below this limit. To stay within the requirements, mediation had to resort to a number of creative solutions:

Arctic set up a foundation that bought Emergy shares, the brokerage house sold shares to empty companies it never paid up, and many Arctic gold clients owned shares for shorter periods before selling them back to the Arctic.

In the end, Arctic managed to get its largest owner and one of Norway’s richest people, Trond Mohn, as Mohn’s Meteva bought Emergy shares for NOK 455 million, meaning he would buy the shares at a fixed price in the future.

Trond Mohn has shares and futures in Emergy at a cost of approximately NOK 850 million.

Trond Mohn has shares and futures in Emergy at a cost of approximately NOK 850 million. (Photo: Ole Berg-Rusten)

Thus, the Arctic Corporation granted its largest owner forward financing on the stock. Among other things, the audit considered whether this funding was in line with the 25 percent limit.

Outgoing Arctic president Mads Seversen and investor Toure Axel Fuldberg at a tennis match in Paris.

Outgoing Arctic president Mads Seversen and investor Toure Axel Fuldberg at a tennis match in Paris. (Photo: Martin Divisek/EPA/NTB)

The last to have Emergy stock on the run is Tore Aksel Voldberg, an Arctic gold customer who was with Arctic Mads boss Syversen to Paris to watch Casper Ruud play tennis.

One way to get the 25 percent clause is to write down the value of the investment. But this reduces the secondary capital of the brokerage house, which may then risk not having enough capital.

Only in 2021 accounts, Arctic reduced the value of Emergy’s investment by more than NOK 100 million. These accounts also included, for the first time, a detailed discussion of term finance and exposure to the Arctic.(Conditions)Copyright Dagens Næringsliv AS and/or our suppliers. We would like you to share our cases using a link that leads directly to our pages. All or part of the Content may not be copied or otherwise used with written permission or as permitted by law. For additional terms look here.