The company misled investors with false and misleading statements in a case which the UK watchdog said damaged confidence in the market for Redcentric shares.

Two former directors have been convicted of misleading investors, in a case brought by the Financial Conduct Authority. 

Timothy Coleman, 57, former financial officer at Redcentric, was convicted last Friday of four charges of making false and misleading statements to the market. Coleman will be sentenced on 3 March. Fraser Fisher, Redcentric’s former chief executive officer, was acquitted on all charges. 

Estelle Croft, the firm’s former finance director, was sentenced to three years’ imprisonment after pleading guilty in August 2021 to making two counts of making a false or misleading statement, four counts of false accounting and seven counts of making a false or misleading statement to Redcentric’s auditors PwC. She was ordered to pay £120,346.70 ($162,873) following confiscation proceedings. 

Redcentric, an AIM-listed IT services provider, issued false and misleading unaudited interim results in November 2015, and false and misleading audited final year results in June 2016.  Both results 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. When the true position was revealed, shareholders suffered immediate losses in the value of their shares.

Croft falsified key accounting records to inflate the cash position and accepted that she was involved in making the false statements. 

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 heard that Coleman was aware that this information was critical to decisions by investors, who were watching Redcentric’s cash position carefully.

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. Both Croft and Coleman took a number of steps to prevent their dishonesty being discovered. Croft gave auditors falsified bank statements and bank reconciliations. Later, when the deception was starting to be discovered, Coleman suggested to a member of the Redcentric board that the misstated position could be washed through a potential new acquisition. 

As a result of the false statements, the share price of Redcentric shares was artificially inflated, which meant that investors paid more to purchase shares than they were actually worth. The FCA estimates that the losses to affected Redcentric shareholders, to which the misstatements contributed, were £43 million. 

In 2019, Redcentric’s auditors PwC were fined £4.6 million by the Financial Reporting Council for botched audits of the company.

The FCA publicly censured Redcentric for market abuse on 26 June 2020 during proceedings in which Redcentric agreed to pay compensation to the affected investors. So far, the company has returned £9 million to shareholders.

“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,” Mark Steward, executive director of enforcement and market oversight at the FCA, said.