Criminal charges brought in FCA investigation into market abuse
Three former employees of Redcentric are being prosecuted on charges of fraud, false accounting and misleading an auditor after an investigation by the Financial Conduct Authority (FCA).
The unnamed individuals will appear at Westminster Magistrates court in August about events that took place between May 2015 and October 2016.
In a separate action, Redcentric has agreed to compensate shareholders as part of a scheme that will cost it £11.4m after the FCA issued a public censure to the company for committing market abuse in 2015-16.
It is the first time that an AIM-listed company has offered to implement its own scheme to pay compensation.
Affected shareholders can choose to take compensation in cash, shares, or a 50-50 split of the two. Redcentric has committed £2.2m from its existing cash resources and is raising £5.8m in a share placing to fund the scheme.
The Harrogate-based company has accepted it issued unaudited interim results and audited final year results which “materially misstated its net debt position and overstated its true asset position”.
The FCA said investors were misled and paid more when purchasing shares than they would have done had they known the true position, and estimated the losses to those shareholders at £43m.
Mark Steward, executive director of enforcement and market oversight at the FCA, said: “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.”
The FCA has chosen not to fine the IT services company because of Redcentric’s offer to compensate shareholders and the impact that a substantial penalty would have on the business. It pointed to the “particular public interest in avoiding the risk of disruption” at this time given Redcentric’s work with the NHS.
Redcentric chief executive Peter Brotherton, who has led the business since November 2018, said: “I am pleased that we have now achieved an agreed settlement, having worked closely with the FCA over a number of years and having acted promptly to issue a corrective statement to the market when the misstatements were discovered. This is positive news for Redcentric and follows a positive start to the year.
“The conclusion of the investigation removes significant uncertainty and costs, enabling management to focus solely on future growth.”
Redcentric has also released a trading update this morning, saying it has been encouraged by the company’s trading performance in the year to date.
Recurring revenue orders received in quarter one FY21 are expected to be marginally ahead of Q1 FY20 and significantly ahead of the Board’s expectations at the time of the last trading update and COVID-19 update released on 3 April 2020.
The firm’s data centre and network restructuring programme will be largely complete by the end of June 2020, and the company now expects to deliver annualised cost savings in FY21 and onwards of slightly more than the £2.8m previously announced.
Redcentric’s Board remains cautious on future trading due to the uncertainty around the economic effects of the COVID-19 pandemic.
Whilst demand for new business in quarter one FY21 has been strong, the business has experienced customers deferring decisions on largescale IT projects due to COVID-19.
