News & Insights

ASIC action to a tardy retraction – how soon is now?

Authors: Dave Filov, Jeremy Newman

ASIC recently published a media release concerning ASX-listed Gold Mountain Limited (GMN), which paid a fine of $33,000 and will be restricted from using a reduced content prospectus until 20 July 2019 following its failure to retract material misinformation in a timely manner.

What prompted the ASIC action?

On Friday, 27 July 2017, GMN was trading at 8.6 cents, when it made public statements via a commissioned article that did not comply with the JORC Code. The article, which was sent to GMN’s shareholders with GMN’s authorisation, included statements that implied that GMN had a targeted mineralisation zone potentially capable of generating $337 million in future revenues, at a time when there was no basis for making such a statement (GMN was still in exploration phase, and had not yet declared a Mineral Resource or Ore Reserve estimate).

The statements were not signed off by a competent person and were not released publicly to the market via the ASX market announcement platform.

GMN’s share price worked its way up to 11 cents on Friday, 4 August 2017, prior to GMN’s market announcement on Monday, 7 August 2017, by which it retracted the statements relating to its targeted mineralisation zone and future revenues.

Production targets and research reports

Followers of corporate enforcement trends would understand that a statement containing future cash flows based on a non-JORC resource (or no resource at all) released via a paid research report or publication, is a readily recognisable and topical breach, imbued with all of the subtlety of shoplifting watermelons.

As set out in our previous article “Research Reports on the ASX platform”, entities should not release any material information, or authorise such release, by way of a research report or other form of publication. All material information should first be released via an ASX market announcement. If a statement is not compliant with the relevant regulatory requirements – for example, if it does not comply with the JORC Code or makes statements which an entity does not have a reasonable basis to make – it should not be made at all.

How should a company handle a retraction scenario?

If an entity finds itself in a situation where material misinformation is in the public domain but has not yet been released on the market announcements platform, how quickly does ASIC expect action should be taken?

In this instance, as we would expect with all others, ASIC said a retraction should be made immediately.

Of course, under the stress of a live market scenario and in an environment where board sign offs are likely to be required, it is rare that an entity will have the opportunity to immediately retract a statement. The appropriate course of action for a company contemplating whether a retraction is required, is to immediately consider a trading halt and to seek advice. Timing in a live market is critical. Halting trading will give an entity the clear air it needs to think.

Retraction or clarification – what’s the difference?

The line between a retraction and clarification is often difficult to distinguish. Generally, retractions are made to remedy a non-compliant or false statement made by a listed entity. Conversely, clarifications can be used to remedy defective disclosure (for example, leaving off a cautionary statement) or where a statement has been made by an independent third party, giving rise to a false market scenario.

So why then did GMN need to retract a statement made by a third party? The answer in this instance goes to attribution / ownership of the statement. The article in question was authorised by GMN, meaning the statements were attributable to GMN, even if the statements were not published by GMN itself.

For GMN, ASIC’s action now means it is unable to issue any shares to retail investors until 20 July 2019 unless it is under a full form prospectus.

Bellanhouse take away points

  • If it can’t be released on the ASX platform, it can’t be released – research reports, social media or commissioned articles are not a means of circumventing compliance requirements. If something is released, an entity has an obligation to make corrective disclosure.
  • An entity must have a reasonable basis for making production targets and statements relating to future cash flows – including having these statements signed off by a competent person.
  • Timing is critical, retractions and clarifications are time sensitive and in a live market scenario entities should take immediate action to rectify a potential false market situation.

Read the ASIC media release.

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