Former Redcentric directors convicted for misleading investors
The former chief financial officer of IT service provider Redcentric has been found guilty of misleading investors, following a prosecution brought by the Financial Conduct Authority.
The AIM-listed company has so far handed back £9mn to shareholders, who were misled into paying an “artificially inflated” share price after financial results published between 2015 and 2016 “materially misstated” its net debt position and overstated its true asset position, according to the FCA.
Former CFO Timothy Coleman was found guilty in Southwark Crown Court on Friday (February 11) on four charges of making false and misleading statements to the market. His sentence will be heard on March 3.
Estelle Croft, the firm’s former finance director, had already been sentenced to three years’ imprisonment, having pleaded guilty to charges of making false statements and false accounting, including to Redcentric’s auditors, PwC.
She was also ordered to pay £120,346 following confiscation proceedings.
Fraser Fisher, Redcentric’s former chief executive, was acquitted by the jury on all charges.
Making a false or misleading statement is a criminal offence punishable, on conviction, by a fine and/or up to seven years’ imprisonment.
Redcentric issued false and misleading unaudited interim results in November 2015, followed by false and misleading audited final year results in June 2016.
Both results materially overstated Redcentric’s cash position, by £13.1mn and £12.2mn respectively. When the true position was revealed, shareholders suffered immediate losses in the value of their shares, according to the FCA.
Coleman was found guilty of further inflating Croft’s figures for financial reports and then presenting them to the board. He also used the false figures to persuade investors not to sell down their investment in the company.
As the misstated position began to present itself, Coleman suggested to a member of Redcentric’s board that it could be washed through a potential new acquisition.
Judge HHJ Beddoe surmised that Coleman “occupied a significantly higher position of responsibility” than Croft.
The FCA estimates Redcentric shareholders lost approximately £43mn as a result of Croft and Coleman’s actions. As a result, Redcentric was publicly censured for market abuse on June 26, 2020, and the firm agreed to pay compensation to affected investors.
Redcentric has made wholesale changes to its board of directors and management team since 2016.
In a statement published today (February 14), it said: “The company is pleased to note that those responsible have been held accountable and that the FCA's investigation and prosecutions have now reached their conclusion.
“The company gave its full support and cooperation to the FCA throughout its investigation and prosecution of the individuals. The company also reached a settlement with the FCA in 2020 and compensated affected shareholders through a restitution scheme amounting to approximately £9mn.”
The firm’s new board has worked to “transform” the company, it said, including overhauling its accounting structures, controls and governance processes and optimising its products, platforms and networks.
“With a modern, resilient and growing business, the Company looks forward to continuing the positive progress it has made into 2022 and beyond,” it said.
Mark Steward, the FCA’s executive director of enforcement and market oversight, dubbed Coleman and Croft’s conduct “appalling”.
Steward added: “While Redcentric has done the right thing in compensating affected shareholders, this case shows the FCA will bring criminal cases against company directors and other officers and hold them personally to account when their conduct damages UK markets.”
ruby.hinchliffe@ft.com