The UK’s Financial Conduct Authority (FCA) said on Friday that Harrogate-based IT firm Redcentric Plc’s former chief financial officer (CFO) Timothy Coleman, 57, and former finance director Estelle Croft, 49, have been found guilty of misleading investors in a 2016 case brought by the FCA.
The FCA said former Redcentric CEO Fraser Fisher, 51, was found not guilty.
The FCA said Croft was sentenced prior to the trial to a total of three years’ imprisonment and ordered to pay £120,346.70 following confiscation proceedings.
The sentencing of Coleman will be heard on March 3.
“Following a prosecution brought by the FCA against three former employees of Redcentric Plc, Timothy Coleman, former Chief Financial Officer, has been found guilty today of four charges concerning the making of false and misleading statements to the market,” said the FCA.
“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 today acquitted by the jury on all charges …”
The FCA added: “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,” said the FCA.
“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.”