On January 23, the UK Financial Services Authority (FSA) fined Entertainment Rights plc (ERT) £245,000 ($351,000) for failing to disclose inside information to the market in a timely manner.

As a result of the variation of a DVD distribution agreement on July 10, 2008, which variation significantly amended the terms of the distribution agreement, the company’s estimated 2008 profits were reduced by £9.7 million ($13.9 million). ERT delayed making an announcement, as it considered that there would be future opportunities to reduce the impact of the variation. ERT finally made an announcement of the variation 78 days later, on September 26, and its shares fell 55% on that day.

The FSA found that the variation was inside information and the lack of timely disclosure led to a false market in ERT’s shares for the 78 days in which disclosure was delayed. As in Wolfson Microelectronics plc, discussed in the January 23, 2009, edition of Corporate and Financial Weekly Digest, the FSA emphasized that justifying non-disclosure of information by offsetting negative and positive news is not acceptable. Companies should disclose both types of information and allow the market to determine whether they cancel each other out.

The FSA took into account that ERT fully co-operated with the FSA investigation and has since taken steps to strengthen its board. ERT also qualified for a 30% discount under the FSA early settlement discount scheme, without which the fine would have been £350,000 ($501,000).