Shares in Electro Optic Systems Ltd (ASX: EOS) were trading more than 5% lower on Thursday after the company revealed it had copped a $4 million fine from the Federal Court.
Disclosure issues to blame
Late on Wednesday, after trade on the ASX had closed for the day, EOS issued a brief statement saying it had been issued with a $4 million penalty in the Federal Court.
The company also agreed to pay the court costs of the corporate regulator, the Australian Securities and Investments Commission (ASIC).
EOS chair Garry Hounsell said regarding the matter:
In recent years, the EOS Board and executive leadership team have been focused on strengthening the foundations of the business for sustainable growth, including resolving legacy issues connected to the challenging conditions the Company faced in 2022 and its market announcements in that year. The conclusion of the ASIC matter represents a key inflection point and enables greater focus on future growth and strategic priorities.
ASIC released a statement on Thursday saying the case regarded EOS failing "to disclose a materially significant downgrade to its 2022 revenue forecast to the market for approximately 14 weeks''.
The regulator went on to say:
Between May and June 2022, EOS advised the ASX that it expected its 2022 revenue to equal or exceed $212.3 million. By 25 July 2022, EOS became aware that its revenue was likely to be approximately $164 million, with a possibility of an additional $27 million. Despite this, EOS did not explicitly correct its guidance until 31 October 2022.
Boards on notice
ASIC Chair Joe Longo said the outcome reinforced the importance of timely and accurate disclosure to Australia's financial markets.
This result demonstrates that continuous disclosure is fundamental to keeping investors properly informed. When a listed company becomes aware of material changes to guidance, it must act promptly to disclose these to the market. Delays in correcting market‑sensitive information undermine market integrity and investor confidence.
Federal Court Justice Ian Jackman accepted that a $4 million penalty was appropriate giving regard to EOS's size and financial resources, "to achieve both specific and general deterrence, without being oppressive or disproportionate''.
ASIC said it has separately commenced proceedings against the former chief executive officer and director of EOS, Dr Ben Greene, in relation to alleged breaches of directors' duties.
Electro Optic Systems shares were 5.6% lower in early afternoon trade at $9.34.
The company was valued at $1.82 billion.
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Motley Fool contributor Cameron England has positions in Electro Optic Systems. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has positions in and has recommended Electro Optic Systems. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.
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