Redcentric PLC Censured by FCA For Market Abuse
Amidst efforts to stem financial misconduct, a regulator hit Redcentric PLC with a formal action against the company and potential criminal sanctions for the individuals involved. The UK Financial Conduct Authority (FCA) issued a public censure to Redcentric PLC for committing market abuse between 9 November 2015 and 7 November 2016. The management services giant accepted the charges and will compensate affected investors.
During that period, Redcentric issued unaudited interim results and audited final year results, which materially misstated its net debt position and overstated its true asset position, in circumstances where it knew the information was false. As a result, the market price for Redcentric shares was artificially inflated until it issued a corrective statement on 7 November 2016. Purchasers of shares between 13 November 2015 and 7 November 2016 paid a significantly higher price than they would have paid had they known the real position. The FCA estimates the losses to affected shareholders to be approximately £43 million.
On 7 November 2016, Redcentric announced that its audit committee had commenced an internal forensic review of its interim results for the six months ending September 2016, which uncovered the misstated accounting balances in the Group’s balance sheet. The FCA found that Redcentric knew or could reasonably have been expected to know that the information in respect of cash and net debt was misleading. “Publicly listed companies must ensure the market is properly informed with timely and true information,” said FCA Executive Director of Enforcement and Market Oversight Mark Steward, with respect to Redcentric’s costly dereliction.
Redcentric has agreed to initiate a scheme to provide some compensation to all net purchasers of Redcentric shares during the period from 9 November 2015 to 4 November 2016. The estimated value of the scheme is £11.4 million, plus each Claimant is entitled to receive an overall value of approximately 17 pence for each net share purchased. Since this is the first time that an AIM-listed company has proactively implemented its own compensation scheme, the FCA has decided to impose a public censure rather than a financial penalty. The FCA formally acknowledges the significant and ongoing cooperation of the FRC with its investigation.
In a separate action, the FCA instituted criminal proceedings against three former employees of Redcentric Plc, who will appear at Westminster Magistrates Court on 28 August 2020. Each individual is charged with two counts of making a false or misleading statement. One faces charges of four counts of false accounting, one count of making a misleading statement to an auditor, and one count of fraud by false representation. Another will face charges of seven counts of making a misleading statement to an auditor, and four counts of false accounting. The alleged offenses took place between 1st May 2015 and 31st October 2016.