Equity Capital Markets Update: Market Abuse – Timing of Disclosure
19 July 2018
The EU Market Abuse Regulation became applicable in Ireland and other EU Member States in July 2016. The Regulation imposes an obligation on issuers to inform the public as soon as possible of inside information. We highlight by way of reminder a case showing the increasingly proactive approach of the UK Financial Conduct Authority (FCA) to market abuse and particularly in respect of the late disclosure of information.
Article 17 of the Market Abuse Regulation (MAR) imposes an obligation on issuers to inform the public as soon as possible of inside information that directly concerns the issuer. In December 2017, the UK’s Financial Conduct Authority (FCA) imposed a fine on an AIM company for late disclosure for the first time following the introduction of MAR on 3 July 2016.
The case of Tejoori Limited
Tejoori Ltd (Tejoori), an AIM-listed BVI company, had a 10.1% shareholding in Bekon Holding AG (Bekon) and was notified in July 2016 that several major Bekon shareholders were triggering the drag-along clause in their Bekon shareholders’ agreement. This would require Tejoori to sign a share purchase agreement (SPA) to sell its Bekon shares for no initial consideration, but with the possibility of receiving deferred consideration The sale of the shares completed on 10 August 2016 and on 22 and 23 August 2016, Tejoori’s share price rose by 38%, with speculation that Tejoori received consideration as part of the sale of Bekon shares.
When AIM’s market operator, the London Stock Exchange, queried the increase in share price, Tejoori responded that it did not know the reason for the increase and was not in possession of any inside information. Teejori misunderstood the consequences of the SPA and did not realise it had sold its shares in Bekon. In August 2016, Teejori for the first time announced the sale of its Bekon shares. It also announced that it was unable, at that time, to assess whether it would receive any future consideration. Tejoori's share price decreased by 13% that day.
Findings of FCA
The FCA found that Tejoori breached MAR by failing to inform the public as soon as possible of inside information which directly concerned it. Tejoori should have made an announcement about its Bekon shareholding as soon as possible after being informed that there was a reasonable expectation it would be required to sell its Bekon shares for no initial consideration. It should also have announced that there was only a possibility of receiving deferred consideration and in an amount significantly lower than its own valuation of its shareholding.
The FCA imposed a penalty of £70,000 on Tejoori. The FCA had originally decided to increase the fine to £100,000, as an adjustment for deterrence, but then reduced the sum to £70,000 for early settlement.
While this is the first time the FCA had imposed a fine on an AIM company for late disclosure following the introduction of MAR, the FCA had already previously shown an increasingly proactive approach to market abuse.
For instance, the FCA enforced its powers under section 384 of the UK’s Financial Services and Markets Act 2000 for the first time in March 2017, when a listed company (Tesco plc and Tesco Stores Limited) was required to pay compensation to investors who suffered loss as a result of market abuse. Further, in April 2017, WSL’s former CFO, an Irish resident, was fined £11,900 and its former Financial Controller was fined £105,000, for engaging in market abuse. Please see further details of these cases here.
The regime introduced by MAR has strengthened the framework for detecting market abuse and for imposing sanctions. Companies should be vigilant in terms of their responsibility to disclose information under MAR and be mindful of the timing of these disclosures.
For more information on market abuse, contact a member of our Equity Capital Markets team.
The content of this article is provided for information purposes only and does not constitute legal or other advice.