Last week, the SFI Group became the first company the FSA was forced to take action against over a breach of the listing rules, since it began monitoring listed companies two years ago.
The regulator lambasted SFI Group, the company that runs the Slug & Lettuce pub chain, for breaches of the stock exchange listing rules. The group had a £23m accounting black hole, after providing information that exaggerated its financial performance.
While the group narrowly escaped a fine, an FSA spokesman said: ‘It is likely companies will be fined in the future.’
Andrew Procter, FSA director of enforcement, said: ‘SFI’s failure to take reasonable care to ensure its systems and controls were capable of providing it with information for the market that was accurate, complete and not misleading constitutes a serious breach of listing rules.’
The regulator said that SFI’s preliminary results announcement presented an overstated and over-optimistic view of its financial results and future prospects. The FSA found that profits of £19.5m for the year ending May 31 2002 were overstated by £6.1m. Net assets of £85.5m were overstated by £23.1m.
Although SFI’s breaches were sufficient to merit a ‘significant financial penalty’, the FSA said that it had decided not to impose a penalty because of the company’s parlous financial position and because it had alerted the regulator as soon as the accounting discrepancies had come to light.
The regulator also said there was no evidence to suggest the breaches were deliberate, blaming flawed accounting systems and controls. However, the regulator said that staff were pressurised by bonus-driven operations managers to maximise profits by spreading invoices across several months.
In a statement, SFI, whose chief executive Andrew Latham and FD Tim Andrews have been working to ensure that the company is on an even footing, said the breaches were because of inadequate financial controls that the company had taken steps to address.
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