The fine imposed on AIM-listed Regal Petroleum is the largest in the market’s history, writes Joss Alcraft, principal at law firm Matthew Arnold & Baldwin.

The fine imposed on AIM-listed Regal Petroleum is the largest in the market’s history, writes Joss Alcraft, principal at law firm Matthew Arnold & Baldwin.

The oil and gas company was fined £600,000 on 17 November after a lengthy investigation by the London Stock Exchange (LSE) and the Financial Services Authority into how Regal reported progress on its Kallirachi oil exploration wells from 2003 to 2005.

In June 2003, Regal described its Kallirachi prospect as ‘expected to contain in excess of 96 million barrels of recoverable oil (with a potential upside of 227.39 million barrels of recoverable oil)’.

Largely as a result of this announcement, and further announcements that followed over time and which were in a similar vein, the market capitalisation of Regal increased by approximately 600 per cent between the first announcement and March 2005 – when Regal announced that its Kallirachi prospect was in fact not commercially viable. The company denied having provided intentionally misleading information.

Nick Bayley, head of regulation at the LSE, is quoted as saying on 17 November 2009, ‘Today’s public censure and fine closes an exceptional case in AIM’s history. It is unprecedented in terms of the seriousness of the rule breaches involved and the resultant market impact. Today’s action demonstrates that the exchange takes the accurate and timely disclosure of price sensitive information by quoted companies very seriously.’

Cautionary tale
For all public companies, the case underlines the importance of careful and accurate reporting, especially where announcements may materially affect share price. But the lengthy investigation and protracted disciplinary proceedings which followed could potentially have been avoided (even if the sanctions possibly not) if Regal had not chosen to aggravate the situation by challenging the LSE’s actions.

As soon as the censure and fine were made public, the company moved to put this saga behind it, stating, ‘The board of Regal, while disappointed at the outcome, is nonetheless pleased to finally divorce the company from this historic episode. At no point has it been suggested that any of the current management team have conducted their responsibilities in anything other than a proper and professional manner.’

The AIM Disciplinary Notice issued by the LSE in connection with this censure adds: ‘Since the breaches were committed, the senior management of Regal (including its Board of Directors) has undergone significant changes and… Regal has implemented improved reporting systems.’

It is possible that one of the reasons the LSE took the tough stance that it did is to attempt to restore some confidence in AIM generally. Although it is some time ago (March 2007) when an SEC commissioner expressed serious concerns over the ‘casino’ that was AIM, these comments were widely publicised at the time and are not yet, one suspects, forgotten.