The first company executives to be convicted under British market abuse laws were given prison sentences on Friday after the judge said they damaged the integrity of the stock market.
Carl Rigby, former chairman of software company AIT Plc, was sentenced to 3-1/2 years in prison, and Gareth Bailey, AIT's former finance director, received two years.
"If investors, large and small, come to the view that they cannot trust the information companies announce to the market, they will avoid the market when making investment decisions," Judge Christopher Elwen said in passing sentence.
Neil Mirchandani, partner in financial services litigation at law firm Lovells, said the stiff sentence could be a "wake-up call" for executives.
"It's a sentence that sends a signal to senior executives that if you sit on information and mislead the market you could go to jail. That hasn't been the case in the past," he said.
Rigby and Bailey were convicted in August by a jury at Southwark Crown Court of recklessly issuing a statement that was "misleading, false or deceptive in a material particular".
It was the first criminal action take by the Financial Services Authority under the Financial Services and Markets Act of 2000.
"This was not a victimless crime. The efficient operation of the markets depends on investors' ability to rely on information released by companies," said Margaret Cole, FSA director of enforcement.
In May 2002, Rigby and Bailey issued a statement via the regulatory news service (RNS) saying AIT's profits would be in line with market expectations of 6.7 million pounds ($11.9 million) for the year to the end of March 2002.
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