Press Releases are a great tool for business to use to announce an exciting event, new product or contract, or to announce earnings. However, a public company can be exposed to liability under securities laws if a press release contains any material misstatement or creates a misleading impression.
Management should keep the following in mind when drafting a press release:
1) Accuracy: The company should have someone who is familiar with material occurrences in the company review the release to ensure that the disclosures are accurate. Perhaps a disclosure committee, in-house or securities counsel, or another member of management. Ensure the disclosure matches what is or will be disclosed in the public filings; keep in mind the requirements of Regulation FD.
2) Forward Looking Statements: The release should include Forward Looking Statements language describing any future events. This creates a “safe harbor” that may protect the company from securities law challenges. The Forward Looking Statements should clearly identify and cite the specific sentence(s) in the release that are forward looking. (you know, the “will increase sales,” or “seeks to be a leader in the industry” types of statements) Also, the language should be carefully crafted for each release, and always reviewed by counsel. The language should disclose the magnitude and possibility of risk and be tailored to the specific facts and circumstances in the press release. The use of standard “boilerplate” language will do little to protect the company.
3) Puffery: Statements that are too vague and too non-specific to be relied upon by investors may not be protected from a safe harbor and thus creates liability. Also language that is over-excited, or over values a company product or event should be avoided. for example, its better to write “Revenues may increase due to expressed interest in the new product,” not “This revolutionary product will significantly increase revenues and generate unbelievable amounts of profit, while drastically increasing our stock price immediately.” (taken from a real release)
Both The SEC and FINRA review press releases during their reviews or investigations, and read them in conjunction with the company’s SEC filings. Therefore a good thing to think while you are drafting the release is “How do you know that?” What specific source document will you be able to hand the SEC or FINRA when they ask you what you based your statement on? Financial Statements, customer surveys etc.? And of course always get the assistance of counsel if you are unsure of any statement.