The Financial Services Authority is investigating possible breaches of stock market rules by David Ross, the entrepreneur whose abrupt departure as deputy chairman of Carphone Warehouse on Monday rocked the company.
The financial regulator is investigating whether Mr Ross, who has been with Carphone for 18 years, has flouted its listing and disclosure rules by failing to declare that he had pledged his stake in the company as collateral for personal loans.
Mr Ross is an adviser to Boris Johnson, London mayor, and a Conservative party donor.
It also emerged that Mr Ross had failed to declare that he had pledged stakes in three other public companies where he is a director as collateral for loans.
The other companies are National Express, the bus operator where Mr Ross is chairman, Big Yellow, the storage company, and Cosalt, a marine safety equipment maker.
The combined value of Mr Ross’s stakes pledged as collateral was £206.1m on Monday night. The stakes have fallen sharply in value since 2006, when they were first pledged.
Carphone’s shares fell 4.3 per cent to close at 89p, because of investor fears that Mr Ross might have to sell his stake.
Mr Ross is the biggest shareholder in Big Yellow. Like Carphone, Big Yellow was also suffering from an overhang and its shares fell 12.1 per cent.
It was unclear on Monday what triggered Mr Ross’s disclosure of his collateral arrangements.
However, the arrangements could be vulnerable to the likely fall in value of his property interests as well as the slump in his public company stakes.
Mr Ross, who was not available for comment on Monday, is heavily exposed to the beleaguered commercial property market, where he has a joint venture with Morgan Stanley, the US investment bank.
The FSA listing rules impose restrictions on directors of a company “dealing” in its shares without first telling the chairman and obtaining clearance from him. Dealing includes circumstances where shares are used as collateral. The FSA declined to comment on Mr Ross.
Carphone said that on December 7 Mr Ross told it that he had “between 2006 and 2008, and as part of a package of security comprising other assets of substantial value, pledged 136.4m ordinary shares in the company against personal loans”.
Charles Dunstone, Carphone’s chief executive, said it had already disclosed in 2002 and 2003 that Mr Ross had pledged 41m shares as security.
It means that Mr Ross’s entire Carphone stake of 19.4 per cent has been pledged as collateral for loans.
Asked why Mr Ross had not revealed the collateral arrangements relating to the 136.4m of Carphone’s shares earlier, Mr Dunstone told analysts: “That is a question for David rather than us. We were unaware. It was perhaps an oversight or misunderstanding of what needed to be done.”
Mr Ross offered his resignation as deputy chairman of Carphone over the weekend. Although Mr Ross is stepping down from Carphone’s board, the other three affected companies gave no indication that he was relinquishing his directorships with them.
Carphone said Mr Ross had told it none of his personal loans were “currently in default, and that he has no current intention to sell any of his shares in the company”.