The corporate regulator is taking legal action against troubled tech company Nuix and its board for allegedly breaching their continuous disclosure obligations, while clearing the insider trading allegations against former company chief financial officer Stephen Doyle and his brother Ross.
The Australian Securities and Investments Commission (ASIC) on Thursday said it has filed papers in Federal Court, alleging that Nuix took more than a month to tell the market that forecasts of statutory revenue and annualised contract value (ACV) in its prospectus were not being materially met.
The legal action comes after a joint investigation by The Sydney Morning Herald, The Age and The Australian Financial Review in May last year exposed serious culture and governance issues inside Nuix and a blotted history of consistently missing budgets and sales forecasts.
Troubled tech Nuix is being taken to court by the corporate regulator.
Macquarie-backed Nuix, which provides investigative analytics and intelligence software, was the biggest initial public offering (IPO) for 2020. It listed in December 2020 at an issue price of $5.31, soared above $11 in January as investors lapped up its 330-page prospectus, then crashed 32 per cent in February after investors were blindsided by the company’s half-year results.
A prospectus is a formal statement lodged with the regulator which contains information and context that helps investors make informed decisions when assessing an investment.
ASIC announced earlier this year that an investigation into whether forecasts in Nuix’s prospectus were reasonable had concluded with no findings of wrongdoing.
But in proceedings filed in the Federal Court late on Wednesday, ASIC alleges that the data analytics company made misleading or deceptive statements in its updates to the ASX in February and March last year, which reaffirmed the forecasts contained in the prospectus.
The company had forecast growth at 18.5 percent in its prospectus, however results at the end of the first half of the 2021 financial year showed Nuix’s underlying business as measured by annualised contract value had essentially shrunk by 4 per cent, according to ASIC.
ASIC alleges it took the company over a month to disclose this material information to the market, despite having an obligation to do so. About $1.2 billion worth of Nuix shares were traded during the period of the contraventions alleged by ASIC.
Nuix chair Jeffrey Bleich, Rodney Vawdrey, Susan Thomas, Daniel Phillips and Iain Lobban are alleged to have breached their duties by failing to take reasonable steps to prevent Nuix from making the misleading statements and breaching continuous disclosure obligations.
ASIC chair Joseph Longo said at the heart of the case was the allegation that Nuix failed to disclose to the market in a timely manner the fact that the forecasts were materially not being met.
“That is a standard of disclosure that we have in Australia, we’ve had it for many years. And that’s what this case is all about,” he said.
“The obligation is on the company to make these disclosures in a timely manner. And what we say is that the directors failed to take reasonable steps to prevent those contraventions, in other words we are alleging they didn’t exercise the requisite degree of care and diligence to make sure the company complied with its obligations.”
Former Treasurer Josh Frydenberg oversaw an easing of continuous disclosure laws last year. Under the changes, corporations and directors are liable for continuous disclosure law breaches only where they acted with “knowledge, recklessness or negligence” in market-sensitive updates.
Longo said ASIC did not believe these legislative changes would affect their case against Nuix.
“In these proceedings, it is not an issue for us. Our allegation is we can establish the contravention under the new regime as well as the old regime,” he said.
“The continuous disclosure regime is a fundamental part of our system of markets regulation that’s been in place for many years. It’s of fundamental importance to transparent and fair markets and for investors, so ASIC takes very seriously breaches of continuous disclosure regime involving listed entities.”
If the allegations are proven by the court, ASIC will seek declarations of the breaches, pecuniary penalties and disqualification orders from the Federal Court.
In a statement to the ASX on Thursday, Nuix said it has fully cooperated with ASIC during the investigation.
“Nuix denies the allegations made against it and the allegations made against the director respondents and intends to defend the proceedings,” the company said.
“Given the matter is before the court, Nuix will not be providing commentary in relation to the progress of these proceedings.”
It comes amid a separate long-running legal dispute between Eddie Sheehy, a co-founder of Nuix and chief executive between June 2006 and January 2017, and Nuix about whether he is entitled to 22.6 million shares in the business. He was no longer involved in the company when it was listed on the ASX in December 2020.
Nuix provides data analytic software for international regulators, tax officials and law enforcement agencies, such as the US Department of Justice, Britain’s Serious Fraud Office and the AFP.
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