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Britain’s financial regulator faces criticism this weekend over the “shambolic” listing on the London Stock Exchange of a healthcare company facing allegations that some of its shares were traded fraudulently.
The Financial Conduct Authority (FCA) approved Umuthi Healthcare Solutions for admission to the London Stock Exchange (LSE) in March. The company has developed a smartphone app to help medicines reach doctors in remote rural areas.
Trading is now suspended in the firm. Police in South Africa are investigating claims that millions of nonexistent shares were sold to investors for about £2.45m before the flotation.
Anthony Morris, of the Umuthi major shareholder group, said: “This listing has been a complete shambles and should never have been allowed. There has been an abject failure by the Financial Conduct Authority.”
The firm denies any wrongdoing. It said the claims concerned share sales prior to its public listing between private individuals that “do not involve the company or its directors”.
The LSE’s main market has about 1,300 companies from more than 70 countries. Listing is described as a “badge of quality”.
The FCA, which reviews company prospectuses before admission to the LSE, has faced criticism of its performance and effectiveness over the last year after a string of financial scandals. Campaigners described the disclosure earlier this month by the Observer that the regulator has paid staff more than £125m in bonuses since 2016 as an “absolute insult”.
Umuthi has operations in South Africa, but wants to expand to other African countries and Europe.
The South African Police Service said last week that the company’s chief executive, Gert Viljoen, and a female consultant, Connie van Nieuwkerk, were arrested over fraud allegations earlier this month.
A police spokesman said: “It is alleged that the CEO with another executive persuaded the shareholders to buy shares that did not exist. Thirty shareholders lost R50m [£2.45m] due to misrepresentation. The investigation is continuing.”
Investors claim the FCA missed a series of red flags that should have blocked the listing. Van Nieuwkerk was fined by financial watchdogs last year in South Africa for the publication of financial statements that were false or misleading.
One of Umuthi’s non-executive directors, Colin Bloom, a prominent Conservative party supporter and a government adviser on faith, said he had resigned from the company last month. He said he had no knowledge of any suspicious activity and has asked the Serious Fraud Office to investigate.
Umuthi has developed a smartphone app that allows doctors and pharmacies in remote areas to directly order drugs from healthcare suppliers. It was listed on the LSE on 4 March, but trading is now suspended.
Umuthi said in a trading update on Thursday: “Mr Viljoen has been released on bail. The allegations appear to relate to over-the-counter sale of Umuthi shares, transactions over which the company and Mr Viljoen had no control or involvement.
“In addition, a consultant to the company, Connie van Nieuwkerk, was arrested as part of the same allegation.
“Ms van Nieuwkerk had no operational role at the company.
“As a result of the arrest, the company has terminated forthwith the consultancy agreement with Ms van Nieuwkerk.”
Viljoen has denied any wrongdoing and says the listing went through “rigorous verification processes”. Van Nieuwkerk did not respond to a request for comment.
An FCA spokesperson said: “We are aware of the issues raised here and are liaising with the relevant authorities in South Africa. As issues relating to the company emerged, we immediately suspended the listing to protect investors, and at the current time it remains suspended.”