Serial offender Photo-Me has been punished for creating a false market in its shares.
Photo-Me International (LSE: PHTM) has had a chequered history as a listed company.
Indeed, the maker of the familiar photo booths has had more than a decade of corporate 'hiccups', brought about by poor management and dubious accounting. For example, way back in August 2000, my Foolish friend Maynard Paton wrote about accounting problems at Photo-Me dating back to July 1999.
A £500,000 fine from the FSA
As the old investing adage goes: "There's never only one cockroach under the fridge."
In other words, when a company's directors warn of serious problems, these have a habit of growing and multiplying, instead of going away.
Thus, on Monday, City regulator the Financial Services Authority (FSA) fined Photo-Me £500,000 for failing to disclose inside information to investors as soon as possible. The delay led to a false market in Photo-Me's shares for 44 days.
Photo-Me's current problems go back to between September and December 2006, when the photo-processing equipment seller announced large contract wins. However, on 17 January 2007, Photo-Me found out that one major contract (with US retailer Albertsons) was being re-tendered and the firm faced at least four other rivals for the contract.
Instead of warning the market immediately, Photo-Me withheld this inside information. By 12 February 2007, Photo-Me knew that its January sales were 40% below target. Again, this should have been revealed to investors without delay. Eventually, on 2 March 2007, Photo-Me issued a profits warning, causing its share price to slump almost a quarter (24%) that day.
Don't keep investors in the dark
Photo-Me issued a response to the FSA's fine on Monday, pointing out that the FSA found no regulatory breaches by Photo-Me's past or present directors in this matter. Also, the firm has already provided for this fine, so it will have no effect on this year's results.
Other companies fined by the FSA for similar breaches include collapsed retailer Woolworths Group, chip-maker Wolfson Microelectronics (LSE: WLF) and media company Entertainment Rights. However, Photo-Me's fine is the largest of its type issued by the FSA, which is soon to fall under the control of the Bank of England.
Under the FSA's Disclosure and Transparency Rules (DTR) and Listing Principles, companies must provide 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.
However, some company directors still behave as though their shareholders were mushrooms -- they keep them in the dark and feed them manure!
Hence, it's high time that directors started taking their obligations to all investors seriously, in order to prevent insiders from being able to benefit from market-sensitive information at the expense of the wider herd.
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