Ex CFO and finance director found guilty of misleading investors
Timothy Coleman, former chief financial officer of IT managed services provider Redcentric, has been found guilty of four charges of making false and misleading statements to the market, in what was described as “appalling misconduct” by the Financial Conduct Authority.
At an earlier stage in proceedings, a second defendant, Estelle Croft, a former finance director at the company, pleaded guilty to charges of making false statements and false accounting, and making false statements to auditors, PwC.
A third defendant, Fraser Fisher, former chief executive officer, was acquitted by the jury on all charges.
Croft was sentenced prior to this trial to a total of three years’ imprisonment, and was ordered to pay £120,346.70 following confiscation proceedings. The sentencing of Coleman will be heard on 3 March.
Redcentric, an 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 overstated Redcentric’s cash position – by £13.1m and £12.2m respectively – and 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.
As a result of the false statements, the share price of Redcentric was artificially inflated, meaning investors paid more to purchase shares than they were actually worth.
The FCA estimates these actions resulted in losses of approximately £43m to affected shareholders and publicly censured Redcentric for market abuse on 26 June 2020, in proceedings in which Redcentric agreed to pay compensation to affected investors.
During the investigation it was revealed Croft falsified key accounting records to inflate the cash position and accepted she was involved in the making of the false statements.
Coleman further inflated those figures for financial reports that were then presented to the Board.
The jury was told the former CFO was aware this information was critical to decisions by investors.
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.
The FCA highlighted that Croft and Coleman knew the market was misled when the statements were published adding that the two took steps to prevent the dishonesty being discovered including Croft providing auditors falsified bank statements and bank reconciliations.
Later, when the issue began to be discovered, Coleman suggested to a member of the Redcentric Board that the misstated position could be washed through a potential new acquisition.
Following the verdicts, Judge Martin Beddoe stated Coleman “occupied a significantly higher position of responsibility” than Croft.
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.”
In a response this morning, Redcentric says it is pleased those responsible have been held accountable, noting that it gave its full support to the FCA throughout its investigation and prosecution.
Redcentric adds: “The company also reached a settlement with the FCA in 2020 and compensated affected shareholders through a restitution scheme amounting to approximately £9m.
“The company has made wholesale changes to its board of directors and management team since 2016 and they have worked to transform the company, including overhauling its accounting structures, controls and governance processes and optimising its products, platforms and networks.”
