The FSA has banned and fined two former directors of Cattles and its subsidiary Welcome Financial Services a total of £600,000 for publishing misleading information to investors about the quality of Welcome’s loan book.
The regulator has also publicly censured Cattles and Welcome.
Cattles’ finance director James Corr has been fined £400,000 while Welcome’s finance director Peter Miller has been fined £200,000.
The FSA has also decided to ban Welcome’s managing director John Blake, and fine him £100,000. However Blake has referred his case to the Upper Tribunal.
Cattles was a sub-prime lender, listed on the London Stock Exchange, which carried out most of its business through its Welcome subsidiary.
The FSA says Cattles’ 2007 annual report contained highly misleading arrears, impairment and profit figures.
It stated that only £900m of Welcome’s approximately £3bn loan book was in arrears, when if accounting standards had been properly applied the correct figure would have been around £1.5bn.
Cattles also announced a pre-tax profit of £165.2m for 2007, but if accounting standards had been correctly applied Cattles would have suffered a pre-tax loss of £96.5m.
The misleading figures from the annual report were also included in a rights issue prospectus that Cattles released to potential investors in April 2008. The rights issue was subsequently fully subscribed and raised £200m. When the true state of Cattles’ loan book emerged in 2009, trading in Cattles’ shares was suspended. On March 2, 2011 Cattles announced a scheme of arrangement under which its shareholders would receive only 1p for each share, compared with a rights issue price of £1.28.
As a result Cattles breached the listing principles by failing to act with integrity towards its shareholders and potential shareholders, and failing to communicate information in such a way as to avoid the creation or continuation of a false market.
The FSA says it would have imposed more substantial financial penalties had it not been for the directors’ financial circumstances.
FSA acting director of enforcement and financial crime Tracey McDermott says: “The consequences for shareholders of the misleading statements issued by Cattles and Welcome have been devastating. These directors failed to act with integrity in discharging their responsibilities. They failed in their obligations to shareholders, the wider market and the regulator.”