It should be noted that the safe harbor provision is not available to historical ﬁnancial statements, nor to forward-looking statements included in IPO registration statements. However, the statutory safe harbor does not replace or alter the current judicial “bespeaks caution” doctrine on which the safe-harbor rules were modeled. The bespeaks-caution doctrine generally provides that, to the extent an offering statement (such as a prospectus) contains a forward-looking statement with sufﬁcient cautionary language, an action brought about as a result of such a statement could be dismissed on those grounds.
The following discussion relates to the application of the rules subsequent to the offering.
To avail itself of the safe harbor provision, the forward-looking information must be clearly identiﬁed as such by the company, and must be accompanied by a cautionary statement identifying the risk factors that might prevent the realization of the forward-looking information. In meeting this criteria, two points should
—The forward looking statements should be speciﬁcally identiﬁed. A general statement such as “certain information contained in this annual report isforward-looking…” does not clearly identify the forward-looking statements.
—Every risk factor need not be identiﬁed to gain protection under the safe harbor. “Boilerplate warnings,” however, will not sufﬁce as meaningful cautionary language.
The statutory safe harbor does not require a company to update a forward-lookingstatement. While companies are not legally required to update such information, material changed circumstances may nonetheless have to be disclosed as dictated by MD&A disclosure requirements. Further, from a business and investor relations standpoint, companies should consider updating such information.
A new public company should ensure that, when disclosing forward-lookinginformation in annual reports and press releases, the requirements for using the safe harbor provision are appropriately met. Your legal counsel will be invaluable in providing the necessary guidance. Such guidance is particularly essential whenforward-looking information is communicated orally (e.g., in conference calls with analysts).
Restrictions of trading on non-public information
Until important information is made public, SEC rules prohibit company insiders from personally trading the company’s securities or passing this information to others. Within the company, material information should be kept conﬁdential. Persons privileged to this information must treat it as conﬁdential until it is released to the public. In the past, violators of this rule have been dealt with harshly (ﬁned or otherwise penalized).
Fiduciary laws require that transactions between a company and any of its ofﬁcers, directors, or large shareholders be fair to the company. These laws apply to both privately and publicly held companies. However, since the ofﬁcers and directors
of a privately held company are usually its only shareholders, the ramiﬁcations of ﬁduciary laws are less than what they might be for a publicly held company.