22^nd February 2009

 

UK Shareholders' Association,

BM UKSA,

London

WC1N 3XX

 

Dear Sir

I am writing to enquire about the legal position of shareholders regarding statements made by the management of companies in which they hold a stake.

I am a shareholder in Blinkx, the AIM-listed, self-proclaimed “world’s largest and most advanced video search engine”. It floated at 45p nearly two years ago, and despite owning some fantastic technology and making what on the face of it seem some good partnerships, the share price has fallen until it is now bouncing along at about a third of that.

The management would have shareholders believe that this fall in the share price is entirely due to wider market conditions – which are of course, as you don’t need me to tell you, worse than at any time for many decades.

However, I believe this isn’t the whole story. Along with many other shareholders I believe that there are two additional factors which have led to a decline in the Blinkx share price. One is what many perceive as an amateur, bungled, incompetent attempt to take over the American company Miva; and the other has been the public utterances of the Blinkx CEO Suranga Chandratillake.   

More than a year ago now Mr. Chandratillake was at the DLD08 conference when he was asked by Martin Sorrell, CEO of WPP, about the Blinkx business model. You can see a video of their exchange here on the Critical Distance weblog:

http://criticaldistance.blogspot.com/2008/01/blinkx-business.html

If you forward the video to about 43 minutes you will be able to see Mr Sorrell’s question, and at about 44m 20s Mr Chandratillake quite clearly says – in public, on the record and on video – that Blinkx is “very close to breakeven”.

In my mind this raises 2 points:

1/ What is the CEO of a publicly-listed company doing releasing what could be construed as price-sensitive information at a conference?

2/ This seems to me to be a clear representation about Blinkx’s future prospects.

In the event we have no evidence that Blinkx is, in fact, at or near break-even – certainly the last interim results we saw last October gave no such indication.

Sadly this was not an isolated incident. As recently as February 4^th of this year  CNET was reporting Mr Chandratillake’s prediction that the company would be profitable next year (http://news.cnet.com/8301-1023_3-10157230-93.html).

My point is this: if Blinkx does not achieve profitability next year would shareholders, in your view, have a case against Mr Chandratillake for making false representations about the company? It is clear that he is making statements he intends to be taken seriously – although it is interesting to note that shareholders have no trading update to judge for themselves the company’s progress – and it seems likely that many shareholders will act on his statement and buy shares in the company. Indeed, I added to my holding in Blinkx on the strength of his exchange with Mr Sorrell (and am now showing a 50% paper loss for my troubles), and my own view is that on that occasion Mr Chandratillake negligently (or, on a less generous view, fraudulently) misrepresented Blinkx’s financial prospects.

I would welcome the UK Shareholder Association’s view on this matter.

Yours faithfully,