Disclosure of information about the listed company on social media by management board members
The U.S. authorities have investigated the activities of Elon Musk, the CEO of Tesla Inc, after his tweet about his potential takeover bid for Tesla1, and his further tweet that Tesla would produce 500,000 cars this year2 (which turned out not to be quite right).
So what would happen if a management board member of a Polish-listed company were to share sensitive or unverified information about the company on social media (such as Twitter or LinkedIn)?
Why can’t we freely tweet on a listed company?
In the European Union there are strict rules and procedures to follow when a listed company has important updates to share with the market (so called inside information3). Unsurprisingly, this does not include a management board member of a listed company posting it on his/her private profile on social media. Some might say there’s no harm done: the information has been made public, so what’s the problem? Well, the rules on the dissemination of inside information in the European Union (including Poland)4 are there to ensure that all investors have simultaneous access to accurate information and know where they can find it (ESPI system followed by information on the company’s website). The company may post its news on social media, but only after it has first made it available via a regulatory information service5.
What are the reasons for introduction of such strict rules on this?
The rules on the disclosure of information are part of the backbone of market integrity. If management board members were free to share essential information without the right checks and balances it could mislead the market, undermine public confidence in securities, and destroy the level playing field that is vital to the proper operation of the financial markets. For investors to have confidence in the markets, they must be confident that companies will release information that is accurate through the right channels.
What are the potential consequences for a management board member who breaches these rules and for a listed company?
In the most extreme cases an individual management board member who tweets information on a Polish listed company could be criminally liable for, inter alia, the unlawful disclosure of inside information under MAR6, and for market manipulation7. They could face up to four or five years of jail time and a fine between PLN 2,000,000 or PLN 5,000,000 (the sanctions may be imposed jointly)8.
The criminal sanctions are not the only instruments available under Polish law. There are also extensive administrative sanctioning powers. The Polish Financial Authority (the “PFSA”) can publicly name and shame those who have breached the rules . The PFSA may also impose a fine up to PLN 4,145,600 and/or prohibit the execution of trades (on his/her own account or on the account of a third person) related to financial instruments admitted to trading on a regulated market or an alternative trading system for a period of up to five years11 12.
Apart from the individual officer of the company, a Polish-listed company itself may be liable for non-compliance or improper compliance with the rules on the disclosure of inside information under MAR. The PFSA, may, inter alia: (i) exclude the securities issued by the company from trading on a regulated market or an alternative trading system; (ii) impose a fine up to PLN 10,364,000 and/or equivalent of 2% of the annual revenues of the company presented in the last audited annual financial statements; or (iii) impose both sanctions13.
These sanctions are provided by Polish legislation, however, the improper use of social media in relation to the disclosure of information regarding Polish-listed companies may have other negative consequences for a company, in particular of reputational nature which may result in even higher losses than any potential criminal or administrative sanction.
What can we learn from the Elon Musk case?
Polish-listed companies should have robust procedures regarding disclosure to the market information on significant events in relation to the company, in particular regarding detailed procedure on disclosure of inside information. The companies should also have controls to maintain the secrecy of sensitive (inside) information and to prevent the publication of misleading information. Staff training and firm policies should cover the risks posed by social media in this context. While retweeting an authorised post by the company, or sharing it on LinkedIn, should pose no risks, no management board member should share any other type of company information on social media until it has been verified as accurate and checked by the legal team for compliance with all applicable rules14. The high profile nature of Elon Musk’s tweets creates a perfect opportunity to remind staff of these rules.
1 - “Am considering taking Tesla private at $420. Funding secured”, tweet dated August 2018.
2 - “Tesla made 0 cars in 2011, but will make around 500k in 2019”, tweet dated 19 February 2019.
3 - The definition of inside information was introduced in Article 7 section 1 of the Regulation (EU) No 596/2014 of the European Parliament and of the Council of 16 April 2014 on market abuse (market abuse regulation) and repealing Directive 2003/6/EC of the European Parliament and of the Council and Commission Directives 2003/124/EC, 2003/125/EC and 2004/72/EC, as amended (the “MAR Regulation”). It is worth noting that the regime under MAR Regulation in relation to disclosure of inside information applies not only to listed companies (Article 2 of the MAR Regulation set out the scope to which this regulation applies) but also to other issuers of financial instruments, as defined in Article 3 section 1 point 21) of the MAR Regulation, (for instance it is sufficient to be an issuer of bonds traded on Catalyst) and emission allowance market participants, as defined in Article 3 section 1 point 20) of the MAR Regulation.
4 - Article 17 of the MAR Regulation and Article 2 of Commission Implementing Regulation 2016/1055 (technical standards under MAR).
5 - Statement of the European Securities and Markets Authority (“ESMA”) in its consultation paper of 15 July 2014 on technical standards under MAR, para 251.
6 - Article 180 of the Polish Act of 29 July 2005 on Trading in Financial Instruments, as amended (the “Act on Trading in Financial Instruments”).
7 - Article 183 of the Act on Trading in Financial Instruments.
8 - Article 180 and article 183 of the Act on Trading in Financial Instruments, respectively.
9 - Article 96 section 10a of the Polish Act on Public Offering and Conditions Governing the Introduction of Financial Instruments to Organized Trading and Public Companies dated 29 July 2005, as amended (the “Public Offering Act”).
10 - Article 96 section 6 point 3) of the Public Offering Act.
11 - Article 96 section 18 of the Public Offering Act.
12 - In the most extreme cases also supervisory board members may be subject to similar sanctions. However, the administrative sanction is a fine up to PLN 100,000 (Article 96 section 6a point 2) and section 10a of the Public Offering Act).
13 - Article 96 section 1i of the Public Offering Act.
14 - For example, could it be misleading the market? Is it unauthorised disclosure of inside information?