Market Abuse – AIM company fined for failing to disclose inside information

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The Financial Conduct Authority (FCA) has recently fined an AIM investment company £70,000 (reduced from £100,000 because of early stage settlement) for failing to inform the market of inside information as required by Article 17(1) of the Market Abuse Regulation (MAR). This is the first time that the FCA has fined an AIM company for late disclosure following the introduction of MAR in July 2016.

The company was a self-managed closed-ended investment company whose shares had been traded on AIM since 24 March 2006. In early 2016, the company had two material investments, one of which was a shareholding in BEKON Holding AG (BEKON) valued in its accounts at $3.35 million. On 12 July 2016, the company was notified by BEKON about a compulsory acquisition of its shares. The acquisition required the company to sell its BEKON shares for no initial consideration and with only a possibility of receiving deferred consideration at a figure far below $3.35 million.

The information about the impending sale of the BEKON shares was inside information and, under MAR, the company was required to disclose the information as soon as possible. This did not happen. Following completion of the sale in August, the market speculated, in online bulletin boards, about the amount that may have been paid to the company for its shares in BEKON. The bulletin board discussions regarded the sale as a positive development and the company’s share price rose sharply, increasing 38% over the two days.

The company had breached Article 17(1) of MAR because it did not release an announcement about its shareholding in BEKON as soon as possible after being informed that there was a reasonable expectation that it would be required to sell its shares in BEKON for no initial consideration and with only a possibility of receiving deferred consideration that was materially lower than the valuation of its investment.

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

“[The company’s] failure to promptly disclose inside information misled the market 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.”

WM comment

This case highlights how important it is to ensure that the continuing obligations under the AIM Rules and MAR in relation to inside information are complied with. The FCA had previously announced in a speech in November 2017 that they intended to step up the enforcement of MAR and this fine is evidence that they are doing just that.