Going Public 475rigorously, and if in the past the company had a practice of discussing such
matters, then it cannot state “no comment” in a particular case. Additionally,
rules of most Exchanges and of the NASDAQ require a company affirmatively
to correct, through its own public disclosure, materially inaccurate and mis-
leading rumors which circulate in the marketplace through third parties re-
gardless of whatever legal ground rules may exist.
The investor relations and legal advisers to the company also will now
have to pay attention to the contents of the Web site, which in the past might
have contained overly enthusiastic reports about the company, its potential
profitability and the functionality of its products. Contents of the Web site can
constitute false and misleading information upon which investors may rely to
their detriment, and financial losses incurred by investors based on erroneous
or dated Web site information can be recovered by lawsuit against the company
and its management.
In forming a public disclosure policy, the company will work closely with
legal counsel. Many of its pronouncements will contain language approved by
the Private Securities Litigation Reform Act of 1995 so as to establish a so-
called “safe harbor” for for ward-looking statements. A company and its man-
agement will be insulated from liability in connection with any statement
which later proves to be inaccurate, provided the statement is believed to be
true when made and provided it is disclosed clearly that the anticipated future
event is dependent on certain variables.
The company now must deal with the common practice of announcing
quarterly earnings, generally by a conference call with securities analysts (se-
curities professionals who follow the company stock and write about the stock
in research reports and publications). Although quarterly financial information
must be filed in the Form 10-Q within 45 days of the end of the first three fis-
cal quarters (or included in the annual Form 10-K within 90 days of the end of
each fiscal year), it is not unusual for a company to announce its earnings by
conference call or perhaps online as soon as determined. It is also during such
earnings announcements that management is sometimes induced to speculate
as to earning trends, and such speculation must be made carefully if it is to be
protected by the “safe harbor” for for ward-looking statements. The SEC is ac-
tively involved in regulating the announcement of earnings in such a private
forum. The practice of releasing this information only to selected securities
professionals has been criticized as fundamentally unfair to the broad investing
public, and regulatory changes in this practice are likely in the near future.
Now that the company is public, management will be expected to an-
nounce its projected sales and profits; produce results that are reasonably con-
sistent with its projections; adjust those projections in midquarter if it appears
that they will prove to be materially erroneous; answer questions of securities
analysts in such a way that the information which is provided is both accurate
and does not materially disclose previously unknown facts; and manage the en-
terprise strategically with an eye toward quarter-to-quarter financial progress.
The morning after the IPO closing, John Dough has already learned that there