After reaching a $4 million settlement with defence and space technology company Electro Optic Systems Holdings (ASX: EOS) over earnings disclosure failings in 2022, the corporate watchdog has launched civil action against the company’s former CEO Dr Ben Greene for alleged breaches of his director’s duties.
The action centres on allegations by the Australian Securities and Investments Commission (ASIC) that Electro Optics failed to disclose changes to its revenue guidance to the market – overstating the amount by as much as $112 million.
Electro Optics Systems today announced it had settled with ASIC, accepting the corporate regulator’s conclusion that the company breached its continuous disclosure obligations from 25 July 2022 to 31 October 2022.
The Canberra-based company has agreed to a $4 million penalty for the breach, which remains subject to Federal Court approval.
However, ASIC is now targeting the company’s former CEO, alleging that Greene “failed to exercise care and diligence in his consideration of material downgrades worth tens of millions of dollars” to the 2022 revenue forecasts by the space, communications and defence systems manufacturer.
Greene stepped down as CEO of Electro Optic Systems in July 2022 after almost 36 years in the role, transitioning to chief innovation officer – a role he still holds.
Towards the end of FY22, Electro Optic Systems provided an earnings guidance to shareholders that revenue would equal or exceed $212.3 million.
ASIC is alleging that by 25 July 2022, Greene “knew or should have known” that the company’s 2022 revenue was likely to be “substantially” lower and the company should have disclosed this to the ASX.
ASIC is also alleging that Greene failed to adequately inform the company’s board and voted in favour of board resolutions deferring the disclosure.
The company ultimately disclosed on 31 October 2022 that, due to supply chain constraints, the timing of revenue recognition had changed which led the company to announce it was targeting revenue of between $100 million and $140 million for 2022.
“Directors are required to exercise care and diligence in their roles, especially when they are made aware of material changes to financial information and in consideration of continuous disclosures to the market,” says ASIC’s chair Joe Longo.
“ASIC will allege that Dr Greene was aware of a material change in the company’s guidance but fell short in his consideration of these financials and EOS’s requirements to disclose them to the ASX.
“ASIC will not hesitate to act to uphold market integrity and support a fair and efficient financial system for all Australians in our public markets.”
In its statement to the ASX today, Electro Optic Systems notes that the settlement agreement with ASIC brings an end to the corporate regulator’s investigation into the company regarding the matter.
However, the company also notes that Greene is not a party to the agreed settlement.
"This outcome represents a constructive resolution with ASIC that allows the business to move forward with clarity, removing the potential of protracted litigation on the matter,” says Electro Optis Systems chair Garry Hounsell.
“We believe this outcome is in the best interests of the company and its shareholders.
“Since late 2022, we have made significant progress in strengthening our business and remain committed to best-practice and transparent communication.
“As we look to the future, we are well-positioned to execute our strategic priorities and deliver long-term value for our shareholders."
In its statement today, Electro Optis Systems notes that the company was navigating “a challenging environment in 2022 marked by strategic, financial and operational pressures”.
The company also points out there was a series of leadership changes later in the year, including the appointment of Hounsell as chair, Dr Andreas Schwer as CEO and Clive Cuthell as CFO.
Shares in Electro Optis Systems were trading almost 10 per cent higher at $4.88 at 11.32am (AEDT) today following the settlement agreement.
The company also announced today that it has completed the $10 million acquisition of UK-based anti-drone interceptor business from MARSS Group, which was revealed in October.
Based on a September update, Electro Optics is expecting full-year revenue for 2025 from existing contracts of between $115 million and $125 million.
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