Redcentric has reached a settlement with the Financial Conduct Authority (FCA) which will see it pay £11.4m back to shareholders.
Redcentric will raise £5.775m through a shares placing to help fund the payments.
Investors who purchased shares between 9 November 2015 and 4 November 2016 are eligible for compensation.
Peter Brotherton, Redcentric CEO, said: "I am pleased that we have now achieved an agreed settlement, having worked closely with the FCA over a number of years and having acted promptly to issue a corrective statement to the market when the misstatements were discovered. This is positive news for Redcentric and follows a positive start to the year.
"The conclusion of the investigation removes significant uncertainty and costs, enabling management to focus solely on future growth.
"With good visibility of sales pipeline and future revenues, strong and improving margins and continued strong cash conversion, we are well placed to capitalise on opportunities across both the public and private sector markets."
The FCA revealed that it has initiated legal charges against three former Redcentric employees, who will appear in Westminster Magistrates Court on 28 August 2020. Each will face charges of two counts of making a false or misleading statement in relation to the Financial Services Act.
One individual faces a further four charges related to fraud.
The FCA said it decided against imposing a financial penalty on Redcentric in order to avoid further harm to investors.
Mark Steward, executive director of enforcement and market oversight at the FCA, said: "Publicly listed companies must ensure the market is properly informed with timely and true information.
"In this case, Redcentric issued misleading final year results, harming its own investors and confidence in the market.
"When the company revealed the true position in November 2016, many investors who had purchased Redcentric shares in the preceding 12 months suffered immediate losses. These losses are directly attributable to the misleading statements issued by the company 12 months earlier. Investors deserve to be told the truth and uncomfortable news cannot be hidden for very long."
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