Here’s why the Phoslock share price just crashed 80%

It has been a day to forget for the Phoslock Environmental Technologies Ltd (ASX: PET) share price on Friday.

This morning the embattled water treatment company’s shares crashed as much as 80% to 5 cents.

This follows Phoslock’s return to trade after almost exactly two years in suspension.

What is going on with the Phoslock share price?

The Phoslock share price returned to trade at long last on Friday after the company received confirmation from the ASX that it has satisfied all the conditions required to be reinstated to quotation.

This includes providing an update on the past fraud and mismanagement issues that have impacted Phoslock and the full disclosure of any known ongoing investigations.

In respect to the fraud and mismanagement, the company commented:

As indicated in the November Announcement, the Company self-reported the suspected fraud, foreign bribery and mismanagement issues identified by current management and entered into an Investigation Cooperation Agreement (ICA) with the Australian Federal Police (AFP) which requires the Company to engage cooperatively with the AFP.

Management advised that its engagement with the AFP is ongoing and it is committed to providing proactive and fulsome cooperation with authorities. It highlights:

Proactive and fulsome cooperation will be an important factor for the Commonwealth Director of Public Prosecutions (CDPP) when deciding whether or not to prosecute the Company or offer it a Deferred Prosecution Agreement should that option become available under Australian Law. Even if the CDPP ultimately decides to prosecute the Company, proactive and fulsome cooperation will also be a significant mitigating factor for sentencing purposes in respect of penalties to be imposed on PET.

However, it has warned that potential penalties could put the company’s financial performance and position at risk. It said:

There is a risk that the Company will be exposed to judgments, fines and penalties arising from regulatory activity including the AFP’s investigation and ASIC’s inquiries that may have an adverse impact on its financial performance and financial position.

And let’s not forget that class action firms will likely be licking their lips at these developments. The company warned:

[F]ollowing the fraud and mismanagement issues, the Company has been, and continues to be, exposed to a higher risk of being involved in proceedings, claims and disputes, whether initiated by the Company or persons previously involved with the Company’s affairs.

All in all, the company is in a very messy position, so it isn’t at all surprising to see the Phoslock share price crashing lower today.

The post Here’s why the Phoslock share price just crashed 80% appeared first on The Motley Fool Australia.

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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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