Photo-Me hit with record fine for creating a false market

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The Independent Online

The city watchdog has fined the photo booth operator Photo-Me International £500,000, the largest ever fine of its kind, for late disclosure of inside information about its poor trading in early 2007. The Financial Services Authority said yesterday that Photo-Me, which also sells photo-processing equipment such as "minilabs", created a "false market" in its shares by not issuing a profits warning for 44 days until 2 March, 2007.

This was despite the photo booth operator finding out on 17 January that year that it was no longer involved in exclusive negotiations to win a lucrative contract with the US-based retailer Albertsons, for the sale of 200 minilabs. To meet market expectations, Photo-Me recognised it had to sell about 1,100 minilabs between November 2006 and April 2007.

But by 12 February, 2007, Photo-Me realised the previous month's minilab sales were 40 per cent behind budget and that revised forecasts had predicted sales of only 750 minilabs. When the photo booth operator finally issued a profits warning on 2 March, 2007, nearly a quarter was wiped off its market capitalisation that day.

The FSA also said that Photo-Me made announcements in September, November and December 2006 that had "created an expectation in the market that it would benefit" from winning large minilab sales contracts and that its sales of the processing equipment were strong. These were key factors in underpinning its share price.

Margaret Cole, the FSA's director of enforcement and financial crime, said: "This is the largest fine of its type issued by the FSA and demonstrates our commitment to enforcing the UK listing regime and ensuring clean, efficient and orderly markets ... Inside information must be announced to the market as soon as possible to allow investors to make informed investment decisions."

Photo-Me said that while it was "disappointed" with the scale of the penalty, it welcomed the fact that the Financial Services Authority did not find any current or previous directors at fault. The company maintained that the FSA had "underestimated the real-time difficulties" faced by Photo-Me in updating the market on the possible outcome of the "complex contractual negotiations".

Photo-Me said the fine would not have a "material" impact on its 2010 results as it had already booked an expense for £500,000 in 2009 accounts.

But three directors at Photo-Me caused anger among investors by selling more than £750,000 worth of shares as they exercised options less than a month before the profits warning on 2 March, 2007. Francois Giuntini, the company's general counsel, and Riccardo Costi, executive director, disposed of £530,000 worth of stock on 20 February, 2007. Jean-Luc Peurois, the finance director, sold £225,000 worth on 6 February.

None of the three directors involved in the sale of shares in early 2007 is still at Photo-Me. Mr Costi and Mr Giuntini left in July 2007, following pressure from a major shareholder and a slump in annual pre-tax profits to £7.4m. Mr Peurois died in 2009.

Separately, the FSA yesterday fined Vantage Capital Markets £700,000 for failing to prevent a consultant, Daniel Hassell, from working with "significant influence" at the interdealer broker without appropriate approval from the regulator.

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