FSA censures Sportsworld and fines former CEO 45,000 for listing rules breach

The FSA has found that Sportsworld breached the Listing Rules by failing to notify the market of changes in its business performance and expectations as to its pre-tax profit (PTP) until 28 January 2002, despite having been aware of the situation since 24 December 2001.

Andrew Procter, FSA Director of Enforcement, said:

"A company's decision on whether or not to make an announcement must be made objectively taking into account the market's likely reaction. Sportsworld's optimism, no matter how honestly held, as to an improvement in its performance, was not a sufficient basis for the company to conclude that no announcement was necessary in respect of the changes in its performance and expectations.

"Mr Brown, as CEO, was responsible for ensuring Sportsworld observed the Listing Rules. Mr Brown and Sportsworld's failure to inform investors and other market participants of changes in its performance and expectations as to performance without delay, and not a month later, could have caused investors to make decisions based on inaccurate information.

"The obligation on listed companies, and their directors, to inform the market without delay of any changes to their business performance is a fundamental protection for shareholders and is vital to ensuring the smooth operation of efficient, orderly and competitive markets."

Sportsworld's profit forecasts, agreed by the Board, for the year ending June 2002 indicated an expected PTP of 16.1 million with expected profits of 5.5 million (34%) in the first half and 10.6 million (66%) in the second half. The company communicated positive views of its prospects in a statement on 3 October 2001 with its preliminary results and again on 29 November 2001 to coincide with its AGM. These announcements helped shape the market's expectation of Sportsworld's likely profits.

Sportsworld's senior management were in receipt of the November management accounts on 24 December 2001. These were disappointing and indicated that Sportsworld had experienced significant losses rather than the expected profit in the year to date, and only greatly improved performance in the second half of the year would allow the company to meet expectations. Management accounts for December 2001, available in the week beginning 21 January 2002, showed a first half year loss of 1.7 million.

Despite the situation becoming ever more apparent in the weeks following 24 December 2001, the Board did not meet until 25 January 2002 to discuss the company's changed circumstances and a trading statement. Sportsworld announced a reduced full year PTP expectation of 9-10 million on 28 January 2002.

Mr Brown, as the CEO, failed in his duty under the Listing Rules to ensure that the Board were kept fully informed of developments so that they were able to consider whether these changes were price sensitive and therefore should have been released to the market without delay. It was not enough for Mr Brown or the company to rely on an optimistic belief that lost ground would be made up in the rest of the financial year as a sufficient basis for not informing the market without delay of price sensitive information concerning the company's adverse performance. The market should have been allowed to judge for itself the credibility of that belief.

Sportsworld would have been subject to a substantial financial penalty in respect of this breach were it not for its lack of financial resources.

Notes for editors

1. The full text of the Decision from the Regulatory Decisions Committee of the FSA and its censure is available here.

2. Sportsworld's listing was suspended on 2 April 2002 pending announcement of its interim results and on 10 April 2002 Administrative Receivers were appointed.

3. Paragraph 9.2 of the Listing Rules states that:

   "A company must notify the Company Announcements Office without delay of all relevant information which is not public knowledge concerning a change:

   (a) in the companys financial condition;

   (b) in the performance of its business; or

   (c) in the companys expectation as to its performance;

   which, if made public, would be likely to lead to substantial movement in the price of its listed securities."

4. The FSA took on new powers under the Financial Services and Markets Act 2000 on 1 December 2001. The disciplinary sanctions available to the FSA for breaches of the Listing Rules that take place on or after 1 December 2001 include a fine or a public statement.

5. The FSA regulates the financial services industry and has four objectives under the Financial Services and Markets Act 2000: maintaining market confidence; promoting public understanding of the financial system; securing the appropriate degree of protection of consumers; and fighting financial crime.

6. The FSA aims to maintain efficient, orderly and clean financial markets and help retail consumers achieve a fair deal.