Mark Hynes - thoughts on corporate disclosure

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

Thursday, August 12, 2010

Malicious lies or fair comment?

Interesting commentary this week around the use of bulletin boards to disseminate ‘news’ – or ‘lies’ according to some sources - to drive down the share price in order to profit from short-selling. A group of oil companies have turned to the courts to get 2 online brokers to remove stories from their bulletin boards, which the companies claim are "untrue and malicious" messages.

The City of London Police are said to be investigating allegations of market abuse in relation to the matter.

What does this mean for investor relations?

The first thing as always is to be aware of the fact that the comment is out there. Monitoring the ‘media’ is lot more complex than it used to be clearly. Members-only sites for investors, often connected to brokers, are widespread, and tracking commentary is far from easy.

Second, where does fair comment and discussion about a company’s prospects, the impact of a corporate decision stop, and malicious rumour mongering start? The DTR’s note that if the market rumour is largely accurate, and based on inside information then it is likely that the issuer can no longer delay disclosure. But where it is simply speculation, or an investor wanting to have a go about losses made, is it wrong to share it? No one wants to stop free speech, but some comment does seem to go beyond it.

Looking more broadly, what does this say about social media? Community based commentary lies at the heart of much of the social media, and clearly the technology can be an enabler for dissemination, which presumably makes this different from the old pump and dump schemes based on e-mail spam campaigns or through telemarketing from "boiler room" brokerage houses.

Is this why some of the IR community especially in Europe has been cautious about adopting it?
Finally, forewarned is forearmed. The FSA issued back in 2008 advice on how regulated firms (brokers) should deal with this. Much of the advice is helpful to issuers.


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