The Times reported a couple of weeks ago on the investigation being undertaken into potential fraud that has thrown technology group WANdisco into a spin. WANdisco had asked for its AIM listing to be suspended as it had discovered a major fraud that could threaten it as a going concern. Today we read that the troubled tech firm has appointed a new interim Chair, Ken Lever, in an attempt to reassure its shareholders / investors.
Investors are (unsurprisingly) considering legal action and it seems likely that we will be hearing much more about WANdisco in the not too distant future.
The troubles at WANdisco are perhaps not dissimilar to those experienced within Autonomy a few years back and may lead to claims under Section 90A/Schedule 10A of the Financial Services and Markets Acts 2000 (FSMA claims) and claims of fraudulent misrepresentation through the tort of deceit and section 2(1) of the Misrepresentation Act 1967.
FSMA claims can result in the issuers of securities being liable to pay compensation to those who have suffered loss as a result of a misleading statement in certain published information relating to those securities, or an omission of something required to be so published, or a dishonest delay in publishing such information. This is information published on a recognised information service, so communicated to the market at large.
My colleagues Kath Saunders and Laura Beagrie prepared an article on the outcome of the trial on liability in the Autonomy case (which was the UK's biggest UK civil fraud trial at that time) and they gave a flavour of the issues we might soon see fleshed out if a case is pursued against WANdisco - read here.
Large corporates should (again) take note that their acts (and omissions) are subject to scrutiny and may come back to bite them if they are proven to be misleading.
It will be interesting to see how the investigation develops under the guidance of Ken Lever (the former chair of waste management business Biffa) and whether the investors seek to prove personal liability against any WANdisco individuals (in a similar vein to investors in the Autonomy case).
The bar in proving fraud is set quite high though and potential claimants would need to satisfy the court that on a balance of probabilities the defendant knew the representation was false or was reckless as to whether it was true or false, and intended reliance on it. If a buyer of listed securities can successfully prove fraud, bringing a claim especially one under FSMA is a very valuable weapon in recovering compensation and making good any losses.