The first MAR compliance fine

Of interest to all working in listed companies

On 13 December, the Financial Conduct Authority (FCA) published a final notice against Tejoori Limited, an investment company listed on AIM, fining it £70,000 ‘for breaching Article 17(1) of the Market Abuse Regulation (EU No. 596/2014) (MAR) between 12 July and 23 August 2016’.  

This is the first enforcement action that the FCA has taken under MAR since it came into effect in the UK on 3 July 2016, at which time AIM companies first fell within the scope of market abuse rules.  

Companies should note that the conduct in question took place a little over a month after the new legislation came into force and the FCA has not lost any time in showing companies the seriousness with which default will be treated under the new regime – nor has it allowed any grace period for misunderstanding of the new requirements. 

The final notice is clear that this was such a misunderstanding rather than a deliberate attempt to deceive the market. But in the words of FCA executive director of enforcement and market oversight Mark Steward: ‘Misunderstanding the commercial reality of a transaction is no excuse.’ There has also been a significant premium added in the calculation of the fine for a deterrent effect.

Article 17(1) of MAR requires that: ‘An issuer shall inform the public as soon as possible of inside information which directly concerns that issuer.’ In this case, Tejoori was a self-managed closed-ended investment company incorporated and domiciled in the British Virgin Islands and managed from the United Arab Emirates, with shares listed and trading on AIM. 

The company had two major investments, one of which was the subject of a corporate action. This would effectively require Tejoori to sell its shares to the bidding company, in a squeeze out by share purchase agreement for no initial payment. There is the possibility that the deferred payment would be significantly less than Tejoori’s valuation of $3.35 million. 

The FCA has penalised Tejoori because it failed to release an announcement as soon as possible after being notified of this situation. To some extent, this failure was exacerbated by the fact that, once the takeover had been announced there was a lot of speculation, mostly on bulletin boards, as to how much Tejoori would have received for its holding, with the Tejoori share price rising by 38% in two days.  

As it happened, the reason for the non-disclosure was that Tejoori had misunderstood the share purchase agreement and did not realise either that it was in possession of inside information or, indeed, that it had sold its shares as part of the share purchase agreement. 

When Tejoori finally released an announcement on 24 August, the share price closed 13% down.

Tejoori agreed to settle at an early stage and qualified for a 30% discount under the FCA’s executive settlement procedures. Without this the financial penalty would have been £100,000. Interestingly, the final notice calculates that the seriousness of the breach warranted a fine of £8,617 but this was increased to £100,000 before discount in order to make it large enough to act as a deterrent. 

Further information can be found in the final notice.

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