FCA says trio recklessly mislead market before contractor’s collapse, but they plan to appeal

Three former Carillion executives have been fined by the UK’s financial watchdog for their “reckless” actions in the doomed contractor’s final months.


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The FCA said the three men were aware of the firm’s decline but failed to reflect this in public announcements

All three men have appealed against the penalties issued by the Financial Conduct Authority (FCA), which are worth just under £1m in total.

Carillion was the UK’s second biggest contractor and was working on 420 public sector contracts when it went bust in January 2018. The FCA found that the firm had “recklessly published announcements on 7 December 2016, 1 March 2017 and 3 May 2017 that were misleading and did not accurately or fully disclose the true financial performance of Carillion”.

The watchdog said: “Those announcements made misleadingly positive statements about Carillion’s financial performance generally and in relation to its UK construction business in particular.”

>> Also read: Kier chief says writing was on wall for Carillion weeks before it went bust

>> Also read: Carillion collapse shone spotlight on industry’s normalised deviance, researchers say

According to the FCA, the firm’s systems, procedures and controls were not robust enough to ensure that contract accounting judgements in its UK construction business were properly made, recorded and reported to the board and audit committee.

The regulator found that former chief executive Richard Howson, along with former finance directors Richard Adam and Zafar Khan “acted recklessly and were knowingly concerned in Carillion’s contraventions”.

It claimed that the three men were aware of Carillion’s deteriorating performance and the increasing financial risks associated yet failed to ensure that Carillion announcements for which they were responsible reflected these facts.

The FCA fined Howson £397,800, Adam £318,000 and Khan £154,400. All three men have referred their respective decision notices to the upper tribunal, which will determine whether to uphold the watchdog’s decisions following a hearing.

The FCA said it would have imposed a £37.9m fine on Carillion itself, were it not for the fact that the firm is insolvent and in liquidation. Instead, it has imposed a public censure on the company. Carillion has not referred its decision notice to the upper tribunal.

>> Also read: The Carillion legacy

Mark Steward, executive director of enforcement and market oversight at the FCA, said: “Carillion failed 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.

“As a result its true financial position remained hidden over many months and the effects of its collapse were aggravated, causing substantial harm to shareholders and creditors.

“This is market abuse, and is as damaging to market integrity as insider dealing and manipulation, though not often described in this way. It should be.”

The decision comes days after the Financial Reporting Council announced that it had fined KPMG £14.4m plus costs for its audit of Carillion.

Four former KPMG auditors were fined individually and banned from the sector’s professional body for various periods of time for their part in misleading the audit watchdog.