Convictions Secured In First UK Criminal Market Abuse Case

by Robin Pilgrim, LawAndTax-News.com, London

24 August 2005

The UK's Financial Services Authority (FSA) announced last Thursday that it had secured convictions in its first criminal market abuse case.

The FSA explained that in May 2002, AIT directors Carl Rigby and Gareth Bailey recklessly issued a statement via RNS that was misleading, false and deceptive in that it stated that both turnover and profit were in line with expectations.

The forecasted profit of £6.7m depended on the inclusion of the revenue from three contracts in the 31 March 2002 year end results, namely £1.1 million from Centraal Beheer, £2.5 million from Datapoint, and £1.2 million from St James's Place.

However, the FSA revealed that:

"The announcement of 2 May 2002 was rendered misleading, false and deceptive because these contracts did not exist. On 31 May 2002 an update was issued stating that the 2 May 2002 statement was no longer accurate because a contract (Centraal Beheer) had not been confirmed, leading to a £1.1m shortfall on revenue and profit. It also noted that short term cash requirements were unlikely to be covered by AIT's available borrowing facilities and other cash resources. The statement caused the share price to fall from 492.5p to 96.5p."

"On 13 June 2002 a further statement was issued announcing that AIT would not publish preliminary results that day, as was previously expected, because of issues that had arisen in the company's audit. It said that there would be a further shortfall in revenue and profit, partly because the company had failed to satisfy itself that the value of a license agreement (Datapoint) worth £2.5m could be recognised in the year end results. The share price fell again from 105p to 38.5p."

Rigby and Bailey were both convicted on one count of recklessly making a statement to the market which was misleading, false or deceptive in a material particular, contrary to Section 397 (1)(c) of the Financial Services and Markets Act 2000 (FSMA).

Margaret Cole, the FSA's Director of Enforcement, observed that:

"This case demonstrates the FSA's willingness and capability to take all necessary action in pursuit of its objective of maintaining market confidence, including prosecuting criminal charges against individuals where appropriate."

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