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, or ought to have known that the information was false and misleading. As a result, investors were misled and paid more when purchasing shares than they would have done had they known the true position.
Redcentric has now agreed to offer compensation to affected investors who purchased Redcentric shares between 9 November 2015 and 7 November 2016.
Mark Steward, Executive Director of Enforcement and Market Oversight at the FCA, said: ‘Publicly listed companies must ensure the market is properly informed with timely and true information. In this case, Redcentric issued misleading final year results, harming its own investors and confidence in the market. When the company revealed the true position in November 2016, many investors who had purchased Redcentric shares in the preceding 12 months suffered immediate losses. These losses are directly attributable to the misleading statements issued by the company 12 months earlier. Investors deserve to be told the truth and uncomfortable news cannot be hidden for very long.
‘In this case Redcentric has agreed to provide compensation for affected investors to make good the losses while also preserving the company’s ongoing business at a time when the business is providing vitally needed services in the fight against coronavirus (Covid-19). We welcome the Redcentric board’s decision as well as the steps taken to remediate the company’s governance.’
On 7 November 2016, Redcentric announced that its audit committee had undertaken an internal review of Redcentric’s interim results for the 6 months ending September 2016, which had discovered misstated accounting balances in the Group’s balance sheet. Redcentric stated in this announcement that its Board had commenced a forensic review of its current and historic balance sheets and would delay publication of its interim results.
Redcentric knew or could reasonably have been expected to know that the information in respect of cash and net debt, published on 9 November 2015 and 16 June 2016 was false or misleading.
As a result of the false or misleading information the market price for Redcentric shares was artificially inflated. This continued until Redcentric issued its corrective statement on 7 November 2016. Purchasers of shares between 13 November 2015 and 7 November 2016 paid a higher price than they would have paid had the false impression not been created. The FCA estimates the losses to affected shareholders to be approximately £43 million.
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 latter being the last trading day before the announcement of 7 November 2016). Redcentric estimates the value of the scheme to potential claimants is £11.4 million and that each Claimant will have a basic entitlement to receive an overall value of approximately 17 pence for each net share purchased.
This is the first time that an AIM listed company has offered to implement its own scheme to pay some compensation to those affected by the harm it caused as a result of market abuse. The FCA has taken into account Redcentric’s approach to compensate affected shareholders, and has decided to impose a public censure rather than a financial penalty. In making this decision, the FCA also had regard to the potential adverse consequences for Redcentric’s business, and therefore its investors and customers, if, in addition to compensation, a substantial penalty had also been imposed. Those customers provide vital services combatting the coronavirus pandemic and there is a particular public interest in avoiding the risk of disruption to those customers at this time.
The FCA would like to acknowledge the significant and ongoing assistance and cooperation of the FRC with its investigation.
In a separate action, the FCA has instituted criminal proceedings against three former employees of Redcentric Plc, who are scheduled to appear at Westminster Magistrates court on 28 August 2020. Each individual will face charges of two counts of making a false or misleading statement, contrary to Section 89(1) of the Financial Services Act 2012.
One of the individuals will further face charges of four counts of false accounting, contrary to Section 17(1)(a) of the Theft Act 1968; one count of making a false or misleading statement to an auditor contrary to Section 501 of the Companies Act 2006; and one count of fraud by false representation, contrary to Sections 1 and 2 of the Fraud Act 2006.
Another of those individuals will also face charges of seven counts of making a false or misleading statement to an auditor contrary to Section 501 of the Companies Act 2006; and four counts of false accounting, contrary to Section 17(1)(a) of the Theft Act 1968.
The alleged offending took place between 1st May 2015 and 31st October 2016.
The findings against the firm are separate to the action being taking against the individuals. No assumption should be made that a criminal offence has been committed.