October 20, 2022

Importance of Regulatory Compliance with Respect to Press Releases and Material Nonpublic Information

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It has become a growing trend in the securities industry for the Securities and Exchange Commission to scrutinize press releases and other information published by publicly traded entities.  This is being done in an effort to protect investors and the market in general and serves an important purpose.   Recently, there have been actions taken by the Securities and Exchange Commission related to fraudulent or misleading press releases, earnings releases, and public statements related to the general business operations, revenue generation, and overall financial condition of various public entities.  Throughout my career, I have reviewed hundreds of press releases, which has taught me that while press releases can be a helpful and beneficial way to provide updates toa company’s shareholders and the overall market, it is crucial to only provide information in a factual, concise manner, while excluding any information that cannot be proven based on a company’s financial statements and business operations.  In addition, there may be additional filing requirements, such as an 8-K to provide Regulation FD disclosures simultaneously with the publication of a press release.   While there are no “hard and fast” rules related to information provided in a press release, it is important to determine whether a press release or any other publicly published information is providing only factual, provable information, or if it may sound like an inducement to invest in the company, or if it may be providing information related to business activities that may not actually come to fruition.  Language such as “greatest”, “best”, “only”, etc, should be carefully examined, as it can lead to an investigation by the Securities and Exchange Commission, which can result in fines, delisting, trading halts, and potential additional penalties or legal action.  

In addition, this week the Securities and Exchange Commission has published an action related to material nonpublic information (“MNPI”).  MNPI is a very hot topic with the Securities and Exchange Commission, and for good reason, as providing MNPI to certain analysts, shareholders, investors, clients, customers, and the like, could result in trading on that information, thereby allowing someone with MNPI to make a profit or avoid a loss, at the peril of individuals or entities who are unaware of such MNPI.  Prior to making any type of presentation, or holding a call with investment analysts, investor groups, other potential individual investors, or even current shareholders, itis imperative to review your presentation carefully and outline what you will be discussing prior to the presentation or call so there is no accidental disclosure of MNPI.  Simultaneously, or promptly after the disclosure of any MNPI to any individual or entity, such MNPI must be disclosed publicly, thereby making it public information, and no longer MNPI.  

It is important to have your securities counsel review every public release that you intend to publish, prior to it being published, in order to ensure regulatory compliance.  In addition, your securities counsel should review any presentation or information you intend to present to any third party, whether orally or in writing, to ensure that no MNPI is included that could violate Regulation FD and Section 13(a) of the Securities and Exchange Act of 1934.  

At SmithEilers, PLLC, we take press releases and MNPI seriously, and are very risk averse, in an effort to keep our clients safe, while still being able to provide valuable information to their shareholders and the market in general.