Corporate corruption and shareholder activism: Ferriday and others v Entain plc

This article was co-written by Tom Fennelly, Trainee Solicitor.

Executive summary

In our previous article 'Risky business – Entain’s DPA', we analysed the Deferred Prosecution Agreement (DPA) Entain plc (Entain) entered into with the Crown Prosecution Service in late 2023.

Following on from the DPA, and as a timely warning of ancillary actions that can be triggered against companies from conduct that is addressed in such agreements, Entain now faces a class action by shareholders who are seeking to recover compensation from Entain.

The thrust of the claim before the High Court (Claim) is that Entain failed to report its knowledge of bribery and corruption that was committed (and the subject of the DPA) by one of its Turkish subsidiaries.

Background

The Claim accuses Entain, one of the world’s largest sports betting and gaming groups of:

• not reporting honestly (or at all) to their investors its knowledge of bribery and corruption at its subsidiary; and
• failing to have the correct procedures in place to stop people taking part in bribes that benefit the business.

The shareholders allege that this conduct by Entain led to a drop in share value. The amount sought is allegedly north of £150m.

Although it is an acknowledged fact that Entain suffered a drop in share price following the DPA, the position is, however, more nuanced than it may appear initially. While questions will be raised as to the impact of the HMRC investigation leading to the DPA, other key events and commercial dealings may also have materially impacted the share price, such as (i) the 2023 purchase of Poland’s STS Group, which delivered a lower than expected financial performance; or (ii) the resignation of CEO Jeannette Nygaard-Anderson. Whether this is used as a defence to the Claim remains to be seen, but Entain will face the following arguments:

1. That it made a material misrepresentation or omission (regarding the alleged misconduct).
2. That there is a causal link between the misrepresentation/omission and their financial losses.
3. That there was knowledge of the wrongdoing.

What does this mean for businesses?

Against an ongoing trend of shareholder activism whereby increasingly litigious shareholders are keen to hold companies and their directors accountable, the breadth of potential civil actions and attempted recoveries stemming from DPAs and decisions from various prosecuting bodies could become an area of heightened awareness for companies. The warnings are there. We have seen this play out in the actions brought against Glencore and Petrofac, whereby shareholders utilised s.90 and s90A FSMA to assert that key corporate reporting and investment materials failed to disclose, and misrepresented information, about corrupt activity. In Glencore’s case, shareholders were disgruntled that the company made untrue and misleading statements that covered up corrupt practices.

Companies that may be at risk of bribery and corruption charges should work with their legal counsel teams to evaluate their existing compliance procedures and ensure that they are sufficiently robust to promote transparency and accountability. This should be a strategic business priority, particularly in light of increasing attempts by legislators to clamp down on errant corporate governance as we have seen through the Bribery Act 2010, the Criminal Finances Act 2017 and more recently, the Economic Crime and Corporate Transparency Act 2023, which has brought in a further iteration of the ‘failure to prevent’ model with the new failure to prevent fraud offence, due to come in force in early 2025.

Related items:

• Risky business – Entain’s DPA
• Entain’s DPA announcement – a ripple or a wave?