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FSA censure strengthens legal case against Marconi directors

Liz Vaughan-Adams
Saturday 12 April 2003 00:00 BST
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Marconi was yesterday facing fresh attacks from legal firms in the US after getting a severe rap over the knuckles from the financial services watchdog over the way it handled a profits warning in the summer of 2001 that sent its shares into freefall.

Two former Marconi directors – its chief executive Lord Simpson of Dunkeld and chairman Sir Roger Hurn – were also heavily criticised by the Financial Services Authority.

The criticism will almost certainly add weight to claims by two US legal firms which have filed class-action lawsuits against Marconi and its directors. The firms, which have filed the suits on behalf of US investors, accuse Marconi of having "falsely reassured investors" and of making "materially false and misleading statements".

The FSA could only issue a public statement about the matter by way of punishment. Had the incident occurred after November 2001, when the watchdog was given new powers, it would have been able to impose a fine on Marconi and/or its directors.

It criticised the company, Lord Simpson and Sir Roger for the delay in releasing the profits warning to the market – a statement, it said, that should have been released, at the latest, a day before it actually appeared.

"Marconi could, and should have, been in a position to make a statement to the market on the evening of 3 July 2001. In the event, the announcement was not made until 18.41 on 4 July 2001," the FSA said. The delay caused Marconi to contravene rule 9.2(c) of the Listing Rules.

Marconi chose to have its shares suspended for the whole day on 4 July since it had announced the sale of its Medical Systems business to Philips in the morning but knew it was issuing a profits warning later in the day. To have announced the disposal ahead of the profits warning would have created a false market in the shares.

The FSA insisted, however, that the company could have made the statement sooner. "In this case a major listed company failed to provide important information to investors on a timely basis," Carol Sergeant, the FSA's managing director, said.

But the regulator cleared both John Mayo, Marconi's former deputy chief executive who received £2.3m for three months' work in 2001, and Steve Hare, its former finance director, of any wrongdoing relating to that specific matter.

It said it had not found that either Mr Hare's or Mr Mayo's conduct had contributed to the company's contravention of the listing rules. Mr Mayo was overseas on business, not involved in the preparation of the statement, and did not return until 3 July. Mr Hare, meanwhile, had prepared a draft statement which was circulated on e-mail on 1 July.

The regulator refused, however, to make the same statements about either Lord Simpson or Sir Roger. In a joint statement, the two men said yesterday: "Whilst we are clearly disappointed at the conclusion the FSA has drawn, the regulations require directors to make difficult judgements."

They added: "We were acutely conscious of our duties to the market, including the duty only to make a statement once satisfied that it was based on reliable information."

The regulator, which spent nearly two years looking into the case, also took the opportunity yesterday to remind other companies of their duties to disclose information, saying it felt it appropriate to "draw attention to the obligations of listed companies which find themselves in similar positions".

Marconi's rescue refinancing plan, which will see bondholders and banks seize control of 99.5 per cent of the business, recently won approval from the High Court. It now awaits a vote by creditors.

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