FSA criminal case over market abuse

THE first criminal case against directors accused of market abuse will be launched tomorrow by the Financial Services Authority against the former chief executive and two directors of Alternative Investment Market-listed software company AIT Group.

The FSA alleges that former AIT executives Carl Rigby, chairman and chief executive, Gareth Bailey, finance director, and Alastair Rowley, sales director, issued a statement on the Regulatory News Service two years ago that was misleading, false and deceptive.

The FSA says this was done to induce others to buy or sell shares. If found guilty in the trial at Southwark Crown Court, the defendants could face seven years in prison and unlimited fines.

The RNS statement was issued on 2 May 2002 when AIT told investors that turnover and profits were in line with market expectations.

About four weeks later AIT issued a profits warning that sent its shares plunging by nearly 80%, wiping an estimated £80m off the group's market capitalisation.

AIT was forced to launch a £20.5m rescue package in August 2002 after two profits warnings. At one time the shares were a market favourite of the software group's house broker UBS, which in June 2002 set a target price of 950p. A few weeks later AIT shares collapsed to 96.5p.

The FSA has the option under the Financial Services and Markets Act of 2000 to prosecute market abuse as a civil or criminal offence.

It has successfully prosecuted the company secretary of AIM-listed Profile Media Group, Robert Middlemiss, in the civil courts for selling 70,000 shares when he knew PMG's revenues were significantly below expectations.

The shares sale enabled him to avoid a loss of £6,825. He was fined £15,000 and subsequently resigned as PMG's company secretary.

The FSA is believed to have a backlog of 13 cases of alleged market abuse to bring before both the criminal and civil courts.

It has been recruiting staff in recent months to beef up its operations following criticism from MPs that it was asleep on the job - and comatose over the mortgage endowment mis-selling scandal.