Risk and crisis management is critical to corporate governance in domestic and multinational corporations. It is important to identify all risks and to ensure that they are avoided, or managed, in such a way that minimises any adverse impact to the business.
We issue this client alert to bring to your attention a growing risk of attack and harm to business, the issuing of hoax press releases. In the last year two mining companies in Australia, Whitehaven Coal and Metgasco have been the target of hoax press releases. These hoax press releases have had an impact on the companies involved and in the case of Whitehaven, the result was $314 million being temporarily wiped from its share value.
These hoaxes highlight the need for companies to continuously monitor, and respond to, media speculation or false information in the market and to take immediate corrective action.
What the Whitehaven Coal and Metgasco cases demonstrate
In February last year Frontline Action, an activist group, released a fake media release, which resulted in $314 million being temporarily wiped from the share value of Whitehaven Coal. The fake media release purported to be from ANZ, claiming that the bank had withdrawn a $1.2 billion loan to help develop the Maules Creek project. As a consequence of the fake media release, trading was halted for a short period of time until Whitehaven Coal released a press release acknowledging and correcting the hoax. Whitehaven Coal share prices fell 9%, with a rebound of 3% after the news of the hoax spread.
ASIC has laid criminal charges against activist Jonathan Moylan under section 1041E of the Corporations Act. This section prohibits a person making a statement, or disseminating information if:
- it is false or materially misleading; and
- is likely to induce persons to dispose of or acquire financial products or to have the effect of reducing the price for securities; and
- the person does not care whether the statement or information is true or false, or knows or ought reasonably to have known it is false or misleading.
If convicted, Jonathan Moylan faces a maximum of 10 years imprisonment and/or a $756,000 fine. He has pleaded not guilty. The trial is due to begin later this year in the NSW Supreme Court.
Similar to the Whitehaven Coal incident, in April a fake press release was sent by a teenage girl to various NSW media outlets, stating that gas explorer Metgasco intended to cease work in the North Coast of NSW. The fake press release used the Metgasco logo and was purported to be signed off by the CEO. Luckily the Metgasco hoax was picked up by NSW media outlets before it reached the market. ASIC is currently investigating this matter.
Actions to consider
The consequence of a hoax can affect corporate share price and impact relationships the company has with financiers, shareholders and other stakeholders. To prevent your company from falling victim of a hoax press release you need to:
- prepare a risk management framework and crisis management plan with processes and procedural mechanisms to react swiftly to a hoax should it arise. Make sure that a critical aspect of this plan permits a media release to be issued even if every member of the Board is not immediately contactable. Speed in correcting the market is absolutely critical;
- get buy in from the Board to implement the risk management framework and the crisis management plan and to ensure that they both reflect the culture and operation of the business; and
- be vigilant on traditional media, analyst coverage and any chat sites that may provide a channel through which a hoax may be released.
It is critical to monitor all media channels for false or misleading information released to the market which may cause market manipulation of the share price or damage to the corporate reputation or brand.
If your business does fall victim of a hoax media release, it is important to minimise potential risks to the company by:
- immediately issuing a corrective statement alerting the market to the hoax;
- where necessary seek an immediate trading halt from the ASX to be given time to correct the hoax statement. In circumstances where every member of the Board is not immediately contactable management should be empowered to take this immediate and urgent action as it is critical to containing the loss;
- consider internet take down and removal of the hoax press release;
- if possible, identify the perpetrator and report their actions to ASIC; and
- put key people who are or might republish the false statement on notice that it is false.
As activism in Australia becomes more organised, and the use of social media and technology becomes more sophisticated, the opportunities for deliberate and fraudulent market manipulation are heightened. Companies need to be on alert and have robust strategies to deal with these increasing attacks.