The Financial Services Authority (FSA) today fined Wolfson Microelectronics plc (Wolfson) £140,000 for failing to reveal price sensitive information to the market as soon as possible. The delay led to a false market in Wolfson shares for 16 days.
On 10 March 2008, a major customer informed Wolfson that it would not be required to supply parts for future editions of two of its products (the “negative news”). Wolfson estimated that this represented a loss of $20 million or 8% of its forecast revenue for 2008. Wolfson also expected, based on other more positive information, that its 2008 forecast revenue would remain the same. The negative news was such that it constituted inside information and should have been disclosed as soon as possible.
On 12 March, Wolfson discussed the matter with its investor relations advisors who wrongly recommended that there was no need to disclose the negative news. Consequently, Wolfson delayed making an announcement. Wolfson had not contacted its corporate brokers or legal advisors at this point.
At its board meeting on 20 March, Wolfson reconsidered the earlier advice received. Following the meeting, Wolfson sought legal and corporate broking advice which recommended disclosing the negative news. On 27 March, the company announced the negative news and its share price closed at about 18% lower than the previous day.
Sally Dewar, managing director of wholesale and institutional markets at the FSA said:
“Listed companies must carefully consider what could be inside information and their obligations to disclose it. It is unacceptable for a company not to disclose negative news because it believes other matters are likely to offset it. Doing this hampers an investor’s ability to make informed investment decisions and risks distorting the market value of a company’s shares.
“Companies have the primary responsibility for meeting their disclosure obligations. While they may benefit from seeking advice from those in a position to comment on their regulatory requirements, they cannot rely, without due consideration, on such advice.”
In determining the final penalty for Wolfson’s actions, the FSA took into account a number of mitigating factors, in particular that the company had sought advice. Wolfson co-operated fully with the FSA investigation, and received a 30% discount of the £200,000 fine for early settlement.
Background
- The Final Notice for Wolfson Microelectronics plc includes the background to the case, details of the principle and rule breaches and factors taken into account when setting the level of the fine.
- In the last four years, the FSA has taken action against Woolworths Group plc; Eurodis Electron plc; MyTravel Group plc; Pace Micro Technology plc; Universal Salvage plc and Martin Christopher Hynes; and Sportsworld Media Group plc and Geoffrey Brown for similar listing rules breaches.
- In his speech on 20 November 2008, Mike Knight, manager of company monitoring at the FSA set out the FSA's role in the continuing obligation regime.
- The Disclosure Rules, (now known as the Disclosure and Transparency Rules), and Listing Principles provide a fundamental protection for shareholders by requiring full disclosure to the market of all relevant information on a timely basis. This ensures that all users of the market get the same information at the same time.
- Disclosure Rule 2.2.1 states that an issuer must notify a RIS [Regulatory Information Service] of any inside information which directly concerns the issuer unless disclosure rule 2.5.1 applies as soon as possible. Listing Principle 4 states that a listed company must communicate information to holders and potential holders of its listed equity securities in such a way as to avoid the creation or continuation of a false market in such listed equity securities.
- The FSA regulates the financial services industry and has four objectives under the Financial Services and Markets Act 2000: maintaining market confidence; promoting public understanding of the financial system; securing the appropriate degree of protection for consumers; and fighting financial crime.
- The FSA aims to promote efficient, orderly and fair markets, help retail consumers achieve a fair deal and improve its business capability and effectiveness.
