WRITING COMPLIANT PRESS RELEASES

As a business executive of a publicly traded company, you are always looking for ways to inform the public about your company and the reasons they should become one of your customers. Using press releases is a common and effective way to get your information into the hands of people who will get it into newspapers, television, and magazines.

However, sometimes you will want to inform the public and the press about something noteworthy or of material significance, such as:

• A new product
• A quarterly earnings report
• An impending merger
• Any other material information

You are required to file periodic reports about your company details with the U.S. Securities and Exchange Commission (SEC), but only a select category of investors take the time to read those reports, and they do it to consider becoming one of your company’s owners, not one of its customers.

Putting information about a public company in a press release is subject to the scrutiny of the SEC. It is important to only include facts and eliminate information that cannot be proven in a company’s financial statements and business operations. There are no specific rules or restrictions on press releases, but content cannot sound like an inducement to invest in the company or promise a result that is still only speculative. Subjective adjectives such as “greatest” or “only” are borderline and can lead to an investigation by the SEC.

How Press Releases Violate Securities Laws

• False Statements or Material Omissions: Statements regarding earnings, product developments, or contracts are material to investor decisions and must be accurate and complete
• Misleading Impressions: Misleading commentary about technically accurate financial data creates a false picture of performance. This type of fraud makes companies and executives legally liable
• Regulation FD Violations: Sharing material nonpublic information by executives before the company has disclosed it to the public can lead to insider trading
• Illegal Solicitation: There are specific conditions about publishing public, marketing-oriented information about general solicitation in private offerings
• Misleading Forward-Looking Statements: Financial projections must provide a reasonable basis for the results or a safe harbor declaration in the event of failure to achieve the promised outcome
• Negative News Concealment: Full transparency is vital to press releases. Issuing positive, unrelated, or distracting information to obscure negative information can be viewed as deceptive
• Use of Non-GAAP Measures: Earnings releases that highlight non-GAAP financial figures are deceptive without giving reconciliations to GAAP results

Consequences of Violations

• SEC Enforcement Actions: The SEC can take legal action against the company and individual officers for fraudulent or misleading statements, resulting in heavy fines
• Trading Suspension: The SEC may halt trading to protect investors
• Investor Lawsuits: Investors can sue for damages caused by misleading statements

How Legal Counsel Can Help

You should have a securities lawyer review all press releases, especially those containing forward-looking statements (projections) or financial data, to ensure they are legally compliant, avoid liability, and prevent the disclosure of material non-public information.

At Corporate Securities Legal LLP, we consider the risks associated with press releases very seriously. We work to keep our clients safe while they provide valuable information to their shareholders and the market in general.