Ex-Bytes CEO allegedly traded shares on behalf of his wife

Admire Moyo
By Admire Moyo, ITWeb's news editor.
Johannesburg, 19 Mar 2024
Bytes CEO Neil Murphy resigned after notifying the board he had made undisclosed trades in the company’s shares.
Bytes CEO Neil Murphy resigned after notifying the board he had made undisclosed trades in the company’s shares.

Bytes Technology Group (BTG) has released an update on its investigation into former CEO Neil Murphy’s resignation following controversy surrounding his unauthorised and undisclosed trading of company shares.

Murphy resigned last month after he notified the board that he had made a number of trades in the company’s shares that had not been disclosed to BTG, or the market, in compliance with the person discharging managerial responsibility (PDMR) disclosure requirements.

In an update to shareholders yesterday, the company revealed details of the circumstances around Murphy’s resignation, including that he also made some unauthorised share trades on behalf of his wife.

The UK-based Bytes is listed on the London Stock Exchange and has a secondary listing on the Johannesburg Stock Exchange (JSE).

It is a reseller of computer software, principally of products made by Microsoft, but also of cloud storage, computer security and computer asset management software.

BTG was acquired by JSE-listed Altron in 1998. The company was demerged from Altron and was subject to an initial public offering (IPO) on the London Stock Exchange in December 2020.

In a statement, Bytes says Murphy’s resignation was prompted by a voluntary request for information (RFI) from the Financial Conduct Authority (FCA), which was sent to him on 14 February 2024.

The RFI indicated Murphy may have conducted additional transactions that were not disclosed to the market or the FCA since the company’s IPO.

Shock revelation

The firm adds that Murphy informed the board that he would share his draft response to the FCA’s inquiries at a scheduled board meeting on 21 February 2024.

However, it says on the morning of this meeting, Murphy unexpectedly resigned with immediate effect, indicating he had failed to make disclosures related to his share dealings.

As subsequently notified to the company and announced on 23 February 2024, it transpired Murphy had engaged in unauthorised and undisclosed trading of ordinary shares on 66 trading days between 6 January 2021 and 10 November 2023, totalling 119 transactions.

“This revelation came as a shock to the other board members, especially considering the company's previous investigation during 2023 into an unrelated share dealing disclosure matter, which had clearly highlighted to all board members the importance of absolute accuracy and transparency in all matters related to share dealings by directors, PDMRs and persons closely associated with them,” says Bytes.

Subsequently, on 12 March 2024, Murphy's lawyers provided the company with further information outlining 15 additional transactions on 10 different trading days conducted by Murphy on behalf of his wife, between 29 December 2021 and 20 November 2023, it adds.

“Given Mr Murphy's longstanding leadership position in the company, the board of directors is saddened as well as shocked by Mr Murphy’s actions, which it finds hard to comprehend. His actions were entirely at odds with the values of openness, honesty and transparency which have been and which remain central to the group's culture and to its ongoing success.”

As a result of these undisclosed trades, BTG notes it is aware that each annual report and accounts for the three years ended 28 February 2021 (FY21), 28 February 2022 (FY22) and 28 February 2023 (FY23) had incorrect directors’ shareholding disclosures for Murphy. This is despite Murphy having represented those disclosures to the company and the group’s auditors Ernst & Young (EY) as part of the external audit.

“The company is cooperating fully with the FCA and provided a response to FCA’s RFI on 9 March 2024 that pertains to the company’s processes and procedures, and will respond to any further requests to assist the FCA in a timely manner,” it notes.

The board has now appointed another independent committee of the board to investigate Murphy’s resignation and his undisclosed share transactions that were not in accordance with the company's Securities Dealing Code.

BTG says PwC and UK corporate law firm Travers Smith are advising the committee. “The outcome of the committee's investigation will be shared with EY, the external auditors, in the context of their current year audit.

“The independent committee will work with the audit and remuneration committees to ensure the proper disclosures are made, and a further prior year adjustment made, to the directors’ shareholdings table in this year's directors' remuneration report.

“Once the committee has completed its investigation and reported to the board, the company will be able to provide a date for the release of its preliminary results for FY24. It is currently envisaged this will be in late May or early June 2024.”

Financial focus

Meanwhile, Bytes yesterday issued its full-year trading update. The group delivered growth comfortably in double-digits in its key metrics of gross profit and adjusted operating profit, and cash conversion in line with the group’s target of 100%, resulting in a cash position of approximately £89 million at year-end.

Gross profit growth and adjusted operating profit growth for the full year are expected to exceed 12%, with gross invoiced income growth of over 25%.

“This reflects the strong demand for software and IT services we continued to see from corporate and public sector clients, despite the well-documented macro-economic headwinds.”

With ongoing support from vendors, longstanding relationships with customers and the hard work of its employees, BTG says it remains confident in its continuing ability to deliver sustained double-digit growth.

Interim CEO Sam Mudd comments: ‘Our board, management and staff should be proud of the performance delivered last year and celebrating a record year for the group.

“We remain committed to our successful strategy of delivering great customer service to our existing customers, acquiring new customers and increasing our share of their IT expenditure. This strategy is underpinned by our strong vendor relationships and the commercial skills of our people, and means we are well-placed to capture the significant growth opportunities ahead of us.”