Carphone boss David Ross quits amid share scandal

Carphone Warehouse co-founder David Ross has quit after admitting he's been using his shares as loan collateral...

Last Updated: 06 Nov 2012

Ross has been forced to resign as deputy chairman of Carphone after it emerged that he’d used his 20% stake to guarantee hundreds of millions of pounds in personal loans. Although this isn’t actually illegal, Ross had failed to inform his shareholders about it, as he’s required to do under stock market rules. And there’s a pretty good reason for this: if any of these loans fall into default – which apparently isn’t the case at the moment – Ross will be forced to sell some or all of his shares to raise cash. And that’s unlikely to do the stock price much good...

According to a statement from Carphone Warehouse this morning, Ross pledged 136.4m shares as collateral against various personal loans between 2006 and 2008, which would be worth about £120m at present valuations (and since Carphone’s share price is down 75% in the last year, they would have been worth a lot more at the time). Ross apparently told them about this yesterday (which must have been an interesting meeting) and tendered his resignation with immediate effect. However, he insists that none of the loans are in default, and that he has ‘no current intention’ to flog any of his shares. What’s more, if and when he does, he’s promised ‘to facilitate an orderly market’ – i.e. not dump them on the cheap.

The problem, of course, is that if he does end up selling the shares at some point – and given his extensive property interests, we can’t imagine his portfolio has had a brilliant year – Carphone could find itself with a major new shareholder. It’s this uncertainty that’s sent the share price down another 5% this morning to a new 12-month low. It’s a similar story at storage company Big Yellow Group and travel group National Express, where he’s also on the board – both admitted today that Ross has been using his shares in their businesses to guarantee loans, and both have seen their shares dive as a result.

So it’s a pretty extraordinary incident – not least because nobody seems to know what these enormous loans (totalling hundreds of millions pounds) were for exactly. Sunday Times Rich List compiler Philip Beresford (who recently estimated Ross's wealth at £700m) told MT this morning that Ross's recent share sales were thought to have gone towards funding his property interests, which include a North Yorkshire grouse moor and a £243m joint venture with Morgan Stanley called Kandahar Real Estate.

For his part, Ross seems to be suggesting that he basically forgot to mention it – and this morning Carphone co-founder Charles Dunstone, his old school friend and business partner, told journalists that it was ‘probably an oversight or a misunderstanding of what needed to be done’. But as oversights go, it's a fairly glaring one - even if you're a multi-zillionaire. Ross is widely regarded as the financial brains behind Carphone, and was recently appointed by London Mayor Boris Johnson to oversee Londoners' financial interests on the 2012 Olympics organising committee. So you’d hope he - or at least his battery of advisers - would be a bit more au fait with this kind of thing...

In today's bulletin:

Carphone boss David Ross quits after share scandal
Ryanair slams BAA as protesters delay flights
FTSE rallies - and HSBC ramps up lending
What kind of leaders will get us through the recession?
Harrogate Grammar top of the business pops

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