Ex-CFO Timothy Coleman has been found guilty of four charges for making false and misleading statements to the market after Redcentric overstated its cash position in results published in 2016 and will be sentenced in March.
Former finance director Estelle Croft was sentenced to three years’ imprisonment prior to the trial at Southwark Crown Court after pleading guilty to charges of making false statements and false accounting, and making false statements to Redcentric’s auditors PwC.
She was ordered to pay £120,346.70 following confiscation proceedings.
A third defendant, former CEO Fraser Fisher – who stepped down from the position at the end of 2017 – was acquitted by the jury on all charges.
The prosecution was brought forward by the Financial Conduct Authority (FCA), which said the MSP 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 £13.1 million and £12.2 million respectively – and consequently misstated its net debt position by the same amount each time”.
This artificially inflated Redcentric’s share price, meaning investors paid more for shares than they were worth. It caused shareholders to suffer immediate losses in the value of their shares once the true position was revealed, the FCA said.
The FCA estimates the losses to affected Redcentric shareholders, to which the misstatements contributed, to be approximately £43 million.
A court heard how Croft falsified key accounting records to inflate the cash position before Coleman further inflated those figures for financial reports that were then presented to the board.
Croft and Coleman knew that the market was misled when the statements were published, the jury was told, and that Coleman was aware that 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 said.
It added that Croft and Coleman took a number of steps to prevent this from being discovered, including Croft giving auditors falsified bank statements and bank reconciliations and Coleman later suggesting to a member of the board that the misstated position could be washed through a potential new acquisition.
In June 2019, auditor PwC was fined £4.55 million for its own involvement in the scandal after the Financial Reporting Council (FRC) found that it had shown a “serious lack of competence in conducting the statutory audit work”.
In a statement released to investors, the MSP said: “Redcentric notes the outcome of the criminal prosecutions by the Financial Conduct Authority of three former employees in relation to historical accounting misstatements contained in announcements issued by the company in 2015 and 2016.
“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 has made wholesale changes to its board of directors and management team since 2016 and they have worked to transform the company, including overhauling the company’s accounting structures, controls and governance processes and optimising its products, platforms and networks.”