On 10 March 2008, a major customer informed Wolfson that it would not be required to supply parts for future editions of two of its products (the “negative news”). Wolfson estimated that this represented a loss of $20 million or 8% of its forecast revenue for 2008. Wolfson also expected, based on other more positive information, that its 2008 forecast revenue would remain the same. The negative news was such that it constituted inside information and should have been disclosed as soon as possible.
On 12 March, Wolfson discussed the matter with its investor relations advisors who wrongly recommended that there was no need to disclose the negative news. Consequently, Wolfson delayed making an announcement. Wolfson had not contacted its corporate brokers or legal advisors at this point.
At its board meeting on 20 March, Wolfson reconsidered the earlier advice received. Following the meeting, Wolfson sought legal and corporate broking advice which recommended disclosing the negative news. On 27 March, the company announced the negative news and its share price closed at about 18% lower than the previous day.
Sally Dewar, managing director of wholesale and institutional markets at the FSA said: “Listed companies must carefully consider what could be inside information and their obligations to disclose it. It is unacceptable for a company not to disclose negative news because it believes other matters are likely to offset it. Doing this hampers an investor’s ability to make informed investment decisions and risks distorting the market value of a company’s shares.
“Companies have the primary responsibility for meeting their disclosure obligations. While they may benefit from seeking advice from those in a position to comment on their regulatory requirements, they cannot rely, without due consideration, on such advice.”
In determining the final penalty for Wolfson’s actions, the FSA took into account a number of mitigating factors, in particular that the company had sought advice. Wolfson co-operated fully with the FSA investigation, and received a 30% discount of the £200,000 fine for early settlement.
