FCA fine AIM-listed company for failure to disclose inside information in line with Market Abuse Regulations

15 December 2017

The Financial Conduct Authority (FCA)  published a Final Notice against Tejoori Limited (Tejoori), fining them £70,000 for failing to inform the market of inside information as required by Article 17(1) of the Market Abuse Regulation.  

The Market Abuse Regulations (MAR) came into force on 3 July 2016. The purpose of MAR was to establish a more uniform and stronger market abuse framework across the European Union, in order to preserve market integrity.

This is the first fine the FCA has imposed on an AIM company for late disclosure following the introduction of MAR. Prior to MAR coming in force, this type of conduct was dealt with by the FCA under the Disclosure Guidance and Transparency Rules set out in the FCA Handbook.  It was not directly considered market abuse and therefore arguably less on the radar of AIM listed companies. 

Whilst the Final Notice has only just been issued, it is of note that the behaviour in question occurred a little over a month after MAR came into force and demonstrates that the FCA have acted robustly in taking action under the new regime and have not given firms any leeway in ensuring that they have fully understood and implemented the regulations. 

The public disclosure of inside information by an issuer is essential to avoid insider dealing and to ensure that investors are not misled. Article 17 (1) of MAR states that an issuer (of securities) shall inform the public as soon as possible of inside information which directly concerns that issuer.  Failure to do so is a breach of MAR, for which a company can be fined.

The brief facts were that Tejoori was a self-managed, closed-ended investment company, listed on the Alternative Investment Market (AIM).  They had two major investments, one of which was a 10.1% shareholding in a German company called BEKON Holding AG (BEKON), valued by Tejoori at USD 3.35 million.  Tejoori was informed that the majority shareholders of BEKON were invoking a provision to require other shareholders to sell their shares in the event of the takeover.  Tejoori was notified that it must sell its shareholding to the takeover company for no initial payment, with the possibility that the deferred payment would be significantly less than Tejoori’s valuation.

On 19 July 2016, Tejoori was notified that the provision was being invoked due to a takeover of BEKON by a company called Eggersmann Gruppe GmbH & co. KG (Eggersmann).  Tejoori transferred its shareholding to Eggersmann on 10 August 2016 and on 11 August 2016 Eggersmann and BEKON issued press releases regarding the takeover, with no mention of Tejoori.

Following the announcement, Tejoori’s share price began to rise, climbing 38% over two days, this followed bulletin board speculation about how much Tejoori had received for its shares. 

The London Stock Exchange contacted Tejoori’s nominated advisor (Nomad) on the morning of 23 August 2016 to query the sudden rise in price. Tejoori informed the Nomad that it did not hold any inside information and that it had not sold its shares in BEKON. This was based on a misunderstanding of the legal effect of the share purchase agreement.

Tejoori ultimately released an announcement on 24 August 2016 which confirmed that Tejoori had sold its BEKON shares for no initial consideration and that it was unable to assess, at that time, whether it would receive any future consideration. Tejoori’s share price closed 13% down on the day of the announcement.

FCA Executive Director of Enforcement and Market Oversight, Mark Steward,  commented:

Tejoori’s failure to promptly disclose inside information misled the market in Tejoori’s shares and prevented investors from making fully informed investment decisions. This was a serious breach. Issuers must have regard to their disclosure obligations at all times and misunderstanding the commercial reality of a transaction is no excuse.”

This is a stark warning to all issuers to make certain they are fully compliant with their disclosure obligations: since the FCA Enforcement investigation Tejoori has cancelled its admission to trading on AIM.

In this case the FCA took action under the new regime almost as soon as it had come in to force which indicates that the FCA expects all firms to be up to speed and have fully understood and implemented any new rules or regulations that are brought in.

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