The information was about the credit quality of Cattle’s subsidiary, Welcome Financial Services.
The FSA has also censured Cattles and Welcome for publishing misleading information.
James Corr, finance director at Cattles, has been fined £400,000 and Peter Miller, finance director at Welcome, has been fined £200,000.
Both have been banned from performing any functions in relation to any FSA regulated activities.
The FSA has also decided to ban John Blake, Welcome’s managing director, and fine him £100,000. Blake has referred his case to the Upper Tribunal.
All three fines were reduced on account of the directors’ current personal financial circumstances.
The actions have been taken because a number of the FSA’s market abuse, listing and disclosure rules, as well as Principles for Businesses, were found to have been breached in this case.
Cattles was a sub-prime lender and was listed on the London Stock Exchange. In 2008 it was a member of the FTSE 250, but has since been delisted. Most of its business was conducted through its subsidiary Welcome. Cattles’ 2007 annual report contained highly misleading arrears, impairment and profit figures. It stated that only £0.9bn of Welcome’s approximately £3bn loan book was in arrears, when if accounting standards had been properly applied the correct figure would have been around £1.5bn. Cattles also announced a pre-tax profit of £165.2m for 2007, but if accounting standards had been correctly applied Cattles would have suffered a pre-tax loss of £96.5m.
The misleading figures from the Annual Report were also included in a rights issue prospectus that Cattles released to potential investors in April 2008. It therefore gave misleading impressions of the firm’s financial health. It is likely that investors would have regarded this as highly material when subscribing under the rights issue. The rights issue was subsequently fully subscribed and raised £200m. When the true state of Cattles’ loan book emerged in 2009, trading in Cattles’ shares was suspended. On 2 March 2011 Cattles announced a scheme of arrangement under which its shareholders would receive only 1p for each share, compared with a rights issue price of £1.28.
As a result Cattles breached the Listing Principles by failing to act with integrity towards its shareholders and potential shareholders, and failing to communicate information in such a way as to avoid the creation or continuation of a false market.
Welcome breached Principle 3 of the FSA Principles for Businesses by failing to take reasonable care to organise and control its affairs responsibly and effectively, with adequate risk management systems. Both firms engaged in market abuse by disseminating the inaccurate information.
Corr and Miller were personally responsible for the breaches by the companies of which they were directors and also committed market abuse.
The FSA has publicly censured Cattles and Welcome, and would have imposed substantial financial penalties had it not been for their financial circumstances. The firms cooperated fully with the FSA’s investigation.
Tracey McDermott, acting director of enforcement and financial crime at the FSA, said: “The consequences for shareholders of the misleading statements issued by Cattles and Welcome have been devastating. These directors failed to act with integrity in discharging their responsibilities. They failed in their obligations to shareholders, the wider market and the regulator.
“In order for markets to function properly, information given to investors must be accurate. Directors of listed companies must act with integrity and exercise appropriate diligence when making disclosures to the market. They should note the personal consequences for those who fail to meet our requirements.”
