What Can Investors Do When Public Companies Publish Misleading Information Into The Markets

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What Can Investors Do When Public Companies Publish Misleading Information Into The Markets?

Suppose you invest your hard-earned money into a public company dreaming of a rich lifestyle, fancy holidays, clothes…the works. For many, the old adage of ‘stock markets go up and down’ comes true, and the supposed ‘investment’ is gone forever. So, what can be done if the dream becomes a nightmare?

Fear not as some investors may be able to retrieve their investment, but how? If investors have invested in a public company in reliance on material classified as ‘misleading information published into the market’, they can claim under section 90A of the Financial Services and Markets Act 2000. Lawyers need to be advising their clients in this precarious situation that the section was introduced to assist ‘investors-at-large’ and requires parties considering claiming to gather documentary evidence such as emails, press releases and company financial reports containing the misleading information to support their respective cases. If documents can be found and disclosed demonstrating that a director had omitted important details and was aware that this may be perceived as leading to the hiding of material facts this will really give the case better prospects of success.

Another criterion is where information such as financial results have been requested but the evidence demonstrates that a business has ‘deliberately delayed’ providing it, and evidence suggests that it sought to create a false market for its shares. The company may also have published misleading information equating to a misstatement and evidence may indicate that a director knew that it was likely to be misleading or false.

It will be important for lawyers to remember their professional obligations, ensure their clients’ expectations are managed and advise on the difficulties involved when claiming under this area as investors will need to demonstrate evidence of ‘knowing wrong’ regardless of which head of damage they choose to claim under’.

There is much uncertainty surrounding this area, and the courts will generally favour the materiality test when deciding if a supposedly ‘inaccurate statement’ falls within the ambit of section 90 1A because the investor is largely seeking to claim based on the reliance on the material provided by the public company. Simmons and Simmons, who specialise in this area commented that in their experience the courts are less likely to find that a peripheral statement had any significant effect on the investor’s decision to invest as it is on the margins.

The most recent UK case was in late January 2022 when the High Court handed down a judgment in favour of Hewlett-Packard. It found that a target company named Autonomy had ‘artificially inflated its revenue reports, growth and gross margins. It eventually led to the fraud conviction of the Chief Finance Officer. Another example in the US was a company named Ginkgo Bioworks Holdings, Inc, and, its plight provides a useful insight into the approach which might be taken in such a case. On 6 October 2021 Ginkgo Bioworks Holdings, Inc was investigated due to accusations of issuing materially misleading business information to the public.

Lawyers need to remind similar clients under the laws of England and Wales to avoid being perceived in a similar light or potentially face similar investigations and class actions from the Regulator and authorities. Ginkco Bioworks Holdings, Inc has never fully recovered from recent events as reflected in its steeply declining share price. If other companies are investigated and action was taken against them it can have devastating consequences. A similar fate may await them such as criminal prosecutions, fraud accusations and a depleted business reputation in the eyes of its customers.

The Legists Content Team

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#Allen&Overy #CliffordChance #HerbertSmithFreehillsLLP #Linklaters #BryanCaveLeightonPaisner #CMS #FreshfieldBruckhaudDeringerLLP #HoganLovellsInternationalLLP #MacfarlancesLLP #NortonRoseFulbright #Simmons&Simmons #Slaughter&May #StephensonHarwood #TraversSmith

This Article was Written Using the Following Sources

[1] Section 90A Financial Services and Markets Act 2000 - Financial Services and Markets Act 2000 (legislation.gov.uk)

[2] Simmons & Simmons – Section 90A FSMA claims: what is misleading published information? – 05 October 20202 - Simmons & Simmons | Section 90A FSMA claims: what is misleading published information? (simmons-simmons.com)

[3] HP v Autonomy – Judiciary – 28 January 2022 - Autonomy -v- Lynch (judiciary.uk)

[4] BBC – HO Wins multibillion-dollar fraud case over Autonomy sale – 28 January 2022 - HP wins multibillion-dollar fraud case over Autonomy sale - BBC News

[5] BBC -Autonomy ex-finance chief sentenced to jail for HP fraud – 13 May 2019 - Autonomy ex-finance chief sentenced to jail for HP fraud - BBC News

[6] BBC – Autonomy boss in ‘deliberate fraud’, court told - Autonomy boss in 'deliberate fraud', court told - BBC News

[7] Section 10A Financial Services and Markets Act 2000

[8] Hammond, Ian - Simmons and Simmons – Parallel Proceedings - Simmons & Simmons | Parallel Proceedings (simmons-simmons.com)

[9] Tobin, Sam – Biggest civil fraud trial ends in ‘substantial’ victory for HP – Law Society Gazette – 28 January 2022 - Biggest civil fraud trial ends in ‘substantial’ victory for HP | News | Law Gazette

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