The media and the short-selling market influencers
21 March 2019
There is a symbiotic relationship between the media and the investment market. Both pursue the facts that can make or break a company and its reputational value. The markets can make the news and the news can make the markets. Investigative journalists and City analysts have won plaudits for exposing financial irregularities in companies such as Steinhoff and Carillion. Indeed the recent saga of Patisserie Valerie and its decline has made for an enthralling read.
These stories contain important lessons that deserve to be told. However, within this quest for the truth and openness lies a more dangerous style of journalism.
At Schillings, we see that the hunger for a hot new story of fraud and mismanagement can also produce its own collateral damage. In some cases, the facts are misconstrued, the sources unreliable and stories embellished. The ramifications for some businesses can be far-reaching and hugely destabilising.
Regardless of the veracity or falsity of media reports, our memories nearly always recall them as fact, even if the claims are eventually disproven. For a business targeted by malicious activists, the defence of a reputation can be costly, not to mention the impact it can have on a company’s valuation and ability to operate. The loss can be tangible and quantified through loss of customers, partnerships and even employees.
The same applies to short-seller reports. The recent case of Babcock Group plc and Boatman Capital Research shows how an anonymous piece of research can wipe hundreds of millions off the market price of a listed company. Boatman Research is one of many independent equity research firms that publish detailed short-selling reports on companies, in some cases anonymously. The research these publishers produce can look convincing but take time to properly analyse, interrogate and verify.
This research is often published without any notice being given to the target company but with the media being notified and briefed in advance. This offers instant copy to time-poor financial journalists. And so the story spreads.
At Schillings, we see how allegations of corporate misdeeds can linger with companies and their management and hamper their ability to operate in the long term. These stories, left to fester in the public domain, can prove toxic and indelible.
Schillings joins up all of the skill sets to enable you to build a defence and attack damaging claims against you and your business. Our legal, cyber, intelligence and strategic advisors offer up the best-in-class response to such challenges. If faced with such a situation, we advise the following:
- First sniff of a story- tackle it head-on. With the use of legal tools, an immediate response is critical to stemming the spread of the story and sending the message that republication of unfounded allegations will not be tolerated;
- Turn your focus to your investors and work with your PR advisors to ensure clear messaging;
- Find the source of the information and review the feasibility of engaging with the original publisher on specific allegations. Acknowledge that sources could be internal leaks or data breaches;
- Consider your ability to detect and respond to insider threats such as bad leavers. Ensure you have the correct technical controls, processes and policies in place. Review these regularly by conducting cyber audits and “red teaming” exercises;
- Investigate the authors of the report using intelligence and cyber experts to determine their identity and the ability to engage directly or via proxies;
- Have a legal team analyse what’s been published and consider if legal action is viable;
- Gather and retain evidence of market abuse, both through investigating trading volumes and identifying likely information holders prior to publication;
- Ensure the media is on notice of any future republications and that challenged content is corrected both online, through media aggregators and databases.
In these situations, the immediate response and the quick deployment of a multi-disciplinary team can quell the storm and build up a tight, legal defence case.Receive our monthly newsletter