Mark Hynes - thoughts on corporate disclosure

Opinions on changing rules, changing best practices, and their effect on investor relations officers.

Wednesday, April 25, 2007

Another consultation: this one has big IRO liability implications.

We have seen a wave, nay, a torrent of consultations and comment letters in the last few years. As the EU realigns its financial services marketplace, as the SEC embarks on an ambitious programme of reform, regulators have wanted our views on everything from accounting to unbundling.

Now however the Davies Review of Liability is raising the issue of liability for (among others) investor relations professionals. The review looks widely at liability of issuers in respect of damage or loss from inaccurate, false or misleading information disclosed by issuers - or their managements (my italics) - to the market or of failure to disclosure relevant information promptly or at all.

Prosecution of IRO’s is not new – at least in the US. Back in 2004 the SEC charged Siebel Systems’ senior vice president Mark Hanson, who at the time was in charge of
investor relations, for violation of his company duty to maintain adequate disclosure controls to ensure compliance with Reg FD. The case was eventually dismissed, but it raised the spectre of an IRO carrying personal liability for his or her actions in disclosure.

Now Professor Davies’ enquiries are examining – in the context of changes made to FSMA 90A and B recently - the extent to which the liability for making false statements to the market should be extended to managers.

The consultation (see )
includes the following: Question 7 Should statutory liability for fraudulent misstatements be extended to those who make the statement on behalf of the company?

In many companies the IRO is the gatekeeper in terms of communicating with the market. In many (most?), internal company documents on the control of inside information, the IRO figures heavily. They have the market knowledge, the expertise and judgement to know what to say and when.

However, will they have the visibility of the preparation of information, or the access to management to be able to question the potential “fraudulence” of information being sent out?

The opportunity to comment remains open for the rest of this week. Transparency Matters will keep eyes open for any developments.


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