Former Redcentric CFO and finance director convicted for 'making false financial statements'

Former finance director at the AIM-listed company, Estelle Croft, has been handed three years in prison while ex-CFO Timothy Coleman will be sentenced in March

The former CFO of AIM-listed MSP Redcentric has been found guilty of making misleading financial statements while a former finance director has been handed a three-year prison sentence for their involvement in an accounting scandal in 2016.

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 also 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 £13.1m and £12.2m 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 actually worth. It also 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 £43m.

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.

Both Croft and Coleman knew that the market was misled when the statements were published, the jury was told, and that Mr 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 both Croft and Coleman took a number of steps to prevent this 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 £4.55m 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".

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."

Redcentric's share price tumbled in 2016 after it announced that a forensic investigation into what happened had been launched.

And following an FCA investigation, it then agreed to compensate affected shareholders - which the company said has amounted to approximately £9m through a restitution scheme.

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.

"With a modern, resilient and growing business, the company looks forward to continuing the positive progress it has made into 2022 and beyond."