On Thursday April 1st, the Ontario Securities Commission (OSC) – the Canadian equivalent to the SEC, put forth allegations against Agoracom.com an online investor relations forum for seeding fake conversations throughout their investor message board community. The allegations describe a scenario of more than 24,000 fraudulent posts made by 670 different accounts. The papers filed by the OSC go into detail on how employees at Agoracom were required to posts under several different aliases and on occasion, conversed with themselves on the forums using different aliases. Agoracom has denied the charges and says they are without merit.
The founders of Agoracom are set to appear in front of the OSC at the end of April, where we assume we will all hear more details of the allegations and the defense of Agoracom. I, like many others, await more details before passing judgment on what really happened and to what degree fraud was committed (if at all).
In light of this recent situation, I wanted to take this opportunity to talk about the problems with message boards and the importance of transparency and trust and being successful online.
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In their article “Is Your Company Tweeting Towards Trouble?”, attorneys Julie Jones and Cynthia McMakin, discuss some of the risks and compliance concerns public companies need to consider when using Twitter. In particular they state
“Due to Twitter’s innovative, yet immediate and informal, nature, tweets made by public companies and their employees may create a higher risk of violating US securities laws because the substance of each tweet may not be as thoroughly vetted as information that is disclosed through traditional channels of communication. Twitter’s appeal as a tool for companies to use to quickly dispense information to the public heightens these risks”.
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On Friday August 14, 2009 the SEC released Compliance and Disclosure Interpretations regarding Regulation Fair Disclosure (Reg.FD). The following post is a direct lift from the SEC website: http://www.sec.gov/divisions/corpfin/guidance/regfd-interp.htm
Regulation FD
Last Update: August 14, 2009
These Compliance and Disclosure Interpretations (”C&DIs”) comprise the Division’s interpretations of Regulation FD. Some of these C&DIs were first published in prior Division publications and have been revised in some cases. The bracketed date following each C&DI is the latest date of publication or revision.
Section 101. Rule 100: General Rule Regarding Selective Disclosure
Question 101.01
Question: Can an issuer ever confirm selectively a forecast it has previously made to the public without triggering the rule’s public reporting requirements?
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General Electric, parent of NBC Universal, has gained attention in the blogosphere over the last few weeks since the October 22 launch of its corporate blog, ‘GE reports – Your source for what’s happening at GE.’
The response has been both positive and negative. Criticism has primarily focused on the accessibility of information disclosed in this way – although anyone can receive automatic updates through RSS feeds, which take all of 2 minutes to set up. And North America enjoys the highest penetration of internet usage in the world.
What’s important to note is that GE executives say the blog permits them to disclose more information and on a more frequent basis, which translates into greater transparency regarding issues that would otherwise remain internal. “This is a tough environment, a lot of misinformation in the marketplace,” GE spokesman Gary Sheffer said. “This is just a fast and simple way to punch through it and to make sure that you tell your story in a simple and engaging way.”
This immediacy is one of the many positive outcomes of the new Reg. FD governing corporate web sites and blogs. In terms of engagement, I love the fact that GE incorporates video to support many of their blog stories. (Jason’s post on the Q4 blog yesterday sited another great example of this tactic, as employed by Overstock.com.)
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The new Reg. FD guidance governing web disclosure has underlined the importance of the corporate web site as a primary source of information for investors and the capital markets. As more issuers look to fully leverage web technologies to meet compliance requirements, the need for integrated disclosure controls and comprehensive records becomes increasingly important.
Determining the best approach to these requirements should not be something delegated to the web master or IT department (although they will ultimately be involved). These are communications, compliance and risk management issues – requiring the involvement of Corporate Legal Counsel, Investor Relations and the Disclosure Committee.
Strong disclosure controls & procedures, supported by consistent, thorough and searchable records is an issuer’s best defence in the wake of a regulatory inquiry. To reduce risk and liability, records should be able to demonstrate due diligence by documenting:
- what was on the web site at any given point in time (including all downloads, presentations and information populated through data feeds)
- the accessibility of the content (to illustrate that negative information wasn’t ‘buried’)
- the full chain of approvals/timelines for information posted to the site
There are several ways that issuers try to capture and maintain records of their web site disclosure including:
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