WORLDSPREADS, ONE of the UK’s largest spread-betting operators, will be wound up after the discovery of an alleged accounting fraud that left up to £12 million (€14.4 million) missing from its clients’ accounts.

Shares in the company were suspended on Friday after Worldspreads informed regulators of accounting irregularities. People with knowledge of the matter said that money from client accounts, which should be segregated, had been mixed with the company’s own funds.

A special administrator was appointed to the company last night following an application to the English High Court.

The UK Financial Services Authority (FSA) confirmed last night that Worldspreads had entered the Special Administration Regime.

Jane Moriarty and Samantha Bewick of KPMG have been appointed as joint special administrators.

The shortfall in the client funds is estimated at between £10 million and £12 million.

Some people close to the process had suggested on Friday that a takeover of the company, through a so-called “pre-pack administration”, might be negotiated over the weekend. IG Group and London Capital Group were among the companies mooted as potential bidders.

However, both companies decided not to pursue an acquisition.

Worldspreads, founded in Dublin in 2000, was listed on London’s Aim market in 2007. It also has a listing on Dublin’s ESM market.

Its insolvency will be managed by KPMG under the Financial Services Authority’s new special administration regime, designed to ensure a faster insolvency process for financial groups.

It raises the prospect of a lengthy legal struggle as nearly 5,000 clients of Worldspreads try to recover the funds they deposited with the company.

The first £50,000 of each account is protected under the Financial Services Compensation Scheme, but clients who are owed larger sums – a group likely to include some other spread-betting companies – might not receive the full value of their accounts.

The situation will draw comparisons with the insolvency of MF Global, the US brokerage that failed to segregate clients’ money as required by law. UK clients have criticised the handling of the insolvency by the FSA and KPMG, administrator to the brokerage’s UK arm, arguing that clients in other countries have had money returned to them more quickly.

It is also likely to prompt criticism of Ernst Young, Worldspreads’ auditor, for signing off on annual accounts at a time when the alleged fraud was being carried out. Ernst Young said it could not comment for confidentiality reasons.

The accounting irregularities were discovered on Friday morning, as the company’s new executive team inspected its accounts, according to Lindsay McNeile, chairman of Worldspreads.

Two days previously, Conor Foley, co-founder and chief executive, and Niall O’Kelly, financial director, had left the company with immediate effect. Mr Foley, who owns about 18 per cent of the firm, was said to be leaving to “pursue other interests”.

Neither of them has been accused of any wrongdoing.

Mr McNeile, who assumed an executive role on Wednesday, said that the discovery had “hit us with enormous force in a dark tunnel”.

Among the company’s non- executive directors is Charlie McCreevy, the former minister for finance and European commissioner, who joined the board in June last year.

Mr McCreevy could not be reached for comment.

Copyright the Financial Times Limited 2012