Lax Advisory Services Invite Censure Against BDO LLP

Jack Humphrey, Regulatory journalist
June 02, 2011 /

BDO LLP has invited criticism into its advisory services after failing to liaise with the UK Listing Authority (UKLA) in advance of the announcement of a merger between Shore Capital Group PLC and Puma Brandenburg Limited while it acted as sponsor.

Consequently, the Financial Services Authority (FSA) censured BDO, the first public censure it appropriated on a sponsor for failing to comply with the Listing Rules.

The public censure came as BDO auditors in USA are facing a $10.7 billion lawsuit filed by investors who claimed BDO ignored signs of fraud “that infected Stanford Financial Group’s operations” according to Edward Snyder, a lawyer for Stanford investors.

Listing Rule 8.7.19R allows the FSA to impose a sanction if it considers that a sponsor has breached any provision of the Listing Rules.

And although section 89 of the Financial Services and Markets Act 2000 (FSMA) allows FSA to publicly censure sponsors for a breach of the Listing Rules or cancel a person’s approval as a sponsor under section 88, the FSA cannot fine a sponsor under FSMA.

According to FSA, Shore Capital approached BDO in May 2009 to act as a sponsor on its proposed merger with Puma and provide the necessary advice. BDO became aware then that the significant size of the target company might spur a reverse takeover in the process.

Shore Capital’s shares were listed on the Official List and traded on the London Stock Exchange.

BDO allegedly failed to meet the Listing Rules stating that the shares of a listing company should be suspended upon announcement of a reverse takeover. These requirements ensure a smooth operation of the market and in the interests of investor protection and market confidence.

The only exception to these requirements is when the Listing Authority is satisfied that there is enough information already in the market about the proposed deal.

“Sponsors provide important protections for investors and the market under the Listing regime. They are entrusted to provide sound and expert guidance to issuers on their obligations, and are relied upon to be open with the UKLA,” said Marc Teasdale, head of department, UKLA.

BDO allegedly agreed with Shore Capital from the beginning of the transaction that it would delay contacting the UKLA until after the announcement and tried to prevent the transaction from being classified as a reverse takeover.

Details of the transaction were announced to the market on June 11, 2009.

Sponsors’ advisory services help the Listing Authority in ensuring that issuers meet their obligations under the Listing Rules.

Therefore, it is important for them to deal with the FSA “in an open and co-operative manner” and perform advisory services with due care and skill according to the FSA.

The FSA claimed that BDO failed to satisfy the requirements for a sponsor under the Listing Rules.

BDO and the former partner who led the BDO team on the transaction have accepted the FSA’s decision and cooperated fully with the FSA’s investigation.

The FSA itself acts as the UKLA, or securities regulator, under Part VI of FSMA, regulating the companies that issue the securities traded in financial markets.

BDO has changed its operations to ensure compliance with the requirements for sponsor in the future.


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