Investors suffering losses following a significant fall in a company's share price may have a claim for compensation under the Financial Services and Markets Act 2000 (FSMA). 

Sections 90 and 90A, together with Schedule 10A, of the Financial Services and Markets Act (FSMA) provide statutory routes for investors to recover losses caused by misleading statements, dishonest omissions, or dishonest delays in the publication of information by companies in the UK.

At Edwin Coe, we advise investors on these claims. This three-part series explains how the regime works, what investors need to establish, and the important differences between each route to recovery.

This is Part 1 of our Stock Drop series and covers s.90 FSMA. 

Parts 2 and 3 of the Stock Drop series are available here:

• Part 2: Section 90A and Schedule 10A FSMA: Misleading the market. 
• Part 3: Disclosing the existence of anti-money laundering investigations 

Understanding Your Rights Under s.90 

Section 90 applies to prospectuses, listing particulars, and any supplementary versions of those documents published after the original but before the offer closes. If such documents contain false or misleading information – or omit something that should have been included – investors who suffered losses as a result may have a statutory claim under s.90 FSMA. That applies if, for example, the share price has fallen as a result. 

Unlike other avenues available to investors, s.90 does not require proof of fraud. Liability is, in principle, strict, making it one of the most accessible routes to recovery for investors misled at the point of acquisition.

Who is Liable?

The persons potentially liable under s.90 are those responsible for the prospectus or listing particulars. This typically includes:

• the issuer of the securities; 
• the directors of the issuer at the time of publication; 
• persons who accept and are stated to accept responsibility for the document or a part of it; and 
• experts such as auditors or valuers who consent to the inclusion of their reports or opinions.

Each responsible person is liable in respect of the parts of the document for which they bear responsibility. 

Multiple defendants with different levels of exposure may be involved in a single claim. Whilst this can add complexity, it can also create opportunities for investors by broadening the pool of potential defendants.

What Must Investors Prove?

To establish a claim, an investor must show four things: 

1. That they acquired the relevant securities; 
2. That the prospectus contained an untrue or misleading statement or a material omission; 
3. That they suffered a loss; and 
4. That their loss was caused by the false or misleading information.

The last point, causation is typically a central issue. Share prices rarely fall for a single reason, and defendants will argue that losses resulted from market conditions or other company-specific factors unrelated to the alleged misrepresentation. 

Defences

Although s.90 creates strict liability in principle, Schedule 10 to FSMA provides defences on which responsible persons may rely.

• Reasonable belief: A responsible person is not liable if they reasonably believed, on the basis of a reasonable investigation, that the statement was true and not misleading, or that the omitted matter was properly omitted. This is an objective standard; personal belief alone is insufficient if it was not grounded in adequate due diligence.
• Publication of a correction: A responsible person who became aware of the problem before the investor acquired the securities, and took all reasonable steps to bring a correction to the attention of likely acquirers, may escape liability. This defence rewards prompt action.
• Reliance on an expert: A non-expert who included a statement made by a competent expert in the prospectus, having no reasonable grounds to doubt the expert's competence or the accuracy of the statement, may have a defence.

A critical feature of these defences is that they are not passive. A responsible person who becomes aware of an error must take active steps to correct the record. Failure to act does not merely forfeit the defence – it may strengthen the investor's case.

What about misleading information or an omission in documents other than listing particulars?

Where a company’s share price has fallen as a result of misleading information or an omission outside the prospectus context - for example, where an issuer has delayed disclosure to the market - investors may instead have claims under s.90A FSMA. 

Further detail is set out in Part 2 of our ‘Stock Drop’ series.

How Edwin Coe Can Help

If you subscribed for or purchased securities in connection with an offering and have since suffered significant losses, Edwin Coe can advise you on your potential claim. 

Claims must generally be brought within six years from the date of the relevant loss, but early action is always preferable.

To discuss a potential claim, please contact Alexander Shirtcliff and Sam Harris in our Commercial Disputes team.