The Financial Conduct Authority (FCA) has reduced the fines for two former Carillion finance directors over their part in misleading statements being issued by the firm.
Richard Adam and Zafar Khan were both aware of serious financial troubles in Carillion’s UK construction business but failed to reflect this in company announcements or alert the board and audit committee, leading to poor oversight, the FCA said.
In 2022, the watchdog initially fined Adam £318,000 and Khan £154,400 but those amounts have now been reduced to £232,800 and £138,900, respectively.
Today’s fines were imposed after Mr Adam and Mr Khan withdrew their challenges to the FCA’s decision, according to the watchdog.
Both fines have now been reduced by 10 per cent following their “cooperation during the authority’s investigation as well as other investigations”, while the authority also accepted Adam earned less as finance director than expected and reduced it further.
Though the authority originally said Adam earned £1.1m in 2016, he argued that “wrongly included” £278,000 for deferred bonuses and long-term incentives.
The authority said: “On further reflection [it] has decided to accept that Mr Adam’s relevant income for 2016 was £862,666.”
But it added: “There has been no change to the breaches for which [the two directors have been] penalised, or the authority’s view of the seriousness of that misconduct.”
Quoted in the Independent, Khan said: “I was finance director of Carillion for just eight months, before leaving in September 2017, some five months before Carillion went into liquidation in January 2018.
“Almost eight years later, the FCA‘s proceedings against me are still continuing.
“However, I no longer have the financial resources to enable me to continue to defend these allegations and the extremely drawn-out nature of these proceedings has had a considerable impact on me and my family.
“Therefore, I have decided to agree a settlement with the FCA to bring this matter to an end.”
He added: “I continue to believe I acted at all times with integrity and in the best interests of the company.”
Wolverhampton-headquartered Carillion caused shockwaves throughout the industry when it fell into compulsory liquidation in January 2018 with liabilities of £7bn.
The FCA said today: “As finance directors, the pair had responsibility for Carillion’s procedures, systems and controls relating to financial reporting.
“These were not sufficient to ensure that contract accounting judgements made in its UK construction business were made, recorded and reported appropriately.”
The FCA found both acted recklessly and were knowingly concerned in breaches by Carillion of the Market Abuse Regulation and the Listing Rules.
Steve Smart, joint executive director of enforcement and market oversight at the FCA, said: “Those in positions of responsibility have a duty to keep the market accurately and and adequately informed. With Carillion, we have seen the serious impact it can have when they do not.
“The action taken against Adam and Khan demonstrates our commitment to preventing market abuse and upholding the standards we expect.”
Adam was finance director of Carillion from April 2007 to December 2016 and Khan was finance director from January 2017 to September 2017.
They both received an initial decision notice on 24 June 2022 and appealed.
The fines have now been issued by the FCA following both men withdrawing their challenges to the notices.
The FCA imposed the penalties on the men for being knowingly concerned in breaches by Carillion of:
- Disseminating information that gave false or misleading signals as to the value of its shares in circumstances where it ought to have known that the information was false or misleading.
- Failing to take reasonable care to ensure that its announcements were not misleading, false or deceptive and did not omit anything likely to affect the import of the information.
- Failing to take reasonable steps to establish and maintain adequate procedures, systems and controls to enable it to comply with its obligations under the Listing Rules.
- Failing to act with integrity towards its holders and potential holders of its premium listed shares.
Carillion’s former chief executive officer Richard Howson, who was fined £318,000, is presently appealing the decision notice he received and the case is due to be heard at London’s Upper Tribunal next month.
At the time of its downfall, Carillion was the second-largest contractor in the UK, employing 18,000 people here and even more overseas.
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Nicola Harley