Financial Conduct Authority
Former CFO and Finance Director guilty of misleading investors in case brought by the FCA, former CEO found not guilty
Following a prosecution brought by the FCA against 3 former employees of Redcentric Plc, Timothy Coleman, former Chief Financial Officer, has been found guilty of 4 charges concerning the making of false and misleading statements to the market.
At an earlier stage in proceedings, a second defendant, Estelle Croft, a former Finance Director at Redcentric, pleaded guilty to charges of making false statements and false accounting, and making false statements to Redcentric’s auditors, PwC. A third defendant, Fraser Fisher, former Chief Executive Officer, was acquitted by the jury on all charges.
Ms Croft was sentenced prior to this trial to a total of 3 years’ imprisonment, and was ordered to pay £120,346.70 following confiscation proceedings. The sentencing of Mr Coleman will be heard on 3 March.
Redcentric, an IT service provider and AIM-listed company, issued false and misleading unaudited interim results in November 2015, and false and misleading audited final year results in June 2016. Both materially overstated Redcentric’s cash position – by £13.1m and £12.2m respectively – and consequently misstated its net debt position by the same amount each time. When the true position was revealed, shareholders suffered immediate losses in the value of their shares.
Ms Croft falsified key accounting records to inflate the cash position and accepted that she was involved in the making of the false statements. Mr Coleman further inflated those figures for financial reports that were then presented to the Board. Ms Croft and Mr Coleman knew that the market was misled when the statements were published. The jury was told that Mr Coleman was aware that this information was critical to decisions by investors, who were watching Redcentric’s cash position carefully.
Mr Coleman also used the false figures to assure key investors about Redcentric’s financial position, persuading them not to sell down their investment in the company. Ms Croft and Mr Coleman took a number of steps to prevent the dishonesty being discovered. Ms Croft gave auditors falsified bank statements and bank reconciliations. Later, when the issue began to be discovered, Mr Coleman suggested to a member of the Redcentric Board that the misstated position could be washed through a potential new acquisition. Following the verdicts, HHJ Beddoe stated that Mr Coleman 'occupied a significantly higher position of responsibility' than Ms Croft.
As a result of the false statements, the share price of Redcentric shares was artificially inflated, which meant that investors paid more to purchase shares than they were actually worth. The FCA estimates the losses to affected Redcentric shareholders, to which the misstatements contributed, to be approximately £43m. The FCA publicly censured Redcentric for market abuse on 26 June 2020 in proceedings in which Redcentric agreed to pay compensation to affected investors.
The FCA would like to acknowledge the significant assistance and cooperation of the FRC during this investigation.
Mark Steward, Executive Director of Enforcement and Market Oversight at the FCA, said: 'These false statements are directly attributable to the appalling misconduct of Mr Coleman and Ms Croft, which caused substantial damage to confidence in the market for Redcentric shares. 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.'
Notes to editors
- A Final Notice was issued to Redcentric PLC on 26 June 2020 regarding these matters.
- Fraser Fisher’s date of birth is 26/03/1970
- Timothy Coleman’s date of birth is 3/11/1964
- Estelle Croft’s date of birth is 12/7/1972
- Making a false or misleading statement is a criminal offence punishable, on conviction, by a fine and/or up to 7 years’ imprisonment.
- Mr Fisher and Mr Coleman stood trial at Southwark Crown Court before a judge (HHJ Beddoe) and jury. The trial started on 01 November 2021 and concluded on 11/02/2022. After 5 days of deliberation the jury issued the following verdicts in respect of both defendants.
- Mr Coleman has been found guilty of 2 counts of making a false or misleading statement, contrary to Section 89(1) of the Financial Services Act 2012. Mr Coleman was found to have knowingly issued the statements referred to above.
- Mr Coleman has further been found guilty of 3 counts of false accounting, contrary to Section 17(1)(a) of the Theft Act 1968.
- Ms Croft pleaded guilty on 17 August 2021 to 2 counts of making a false or misleading statement, contrary to Section 89(1) of the Financial Services Act 2012, 4 counts of false accounting, contrary to Section 17(1)(a) of the Theft Act 1968 and 7 counts of making a false or misleading statement to an auditor contrary to Section 501 of the Companies Act 2006.
- In 9 November 2015, Redcentric PLC published its interim results by means of a Regulatory News Service announcement (RNS). In that RNS, the company’s cash and cash equivalents were falsely over-stated by more than £13.1m, and its net bank debt was under-stated by the same amount. On 16 June 2016, Redcentric PLC published its audited results by means of a further RNS. That RNS over-stated the company’s cash and cash equivalents by more than £12.2m and under-stated its net debt position by the same amount.
- The Financial Services and Markets Act 2000 gives the FCA powers to investigate and prosecute making a false or misleading statement, defined by Financial Services Act 2012.
- To report market abuse to us or to speak to someone about it, please see our market abuse webpage.
Original article link: https://www.fca.org.uk/news/press-releases/redcentric-former-cfo-finance-director-guilty-misleading-investors
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