Dr. iur. Christoph Brunner. Liability of Publicly Held Corporations for a Violation of a Duty to Disclose, in Particular the «Ad Hoc Publicity»

Transcription

1 Dr. iur. Christoph Brunner Liability of Publicly Held Corporations for a Violation of a Duty to Disclose, in Particular the «Ad Hoc Publicity» Comparative Study of the Relative Law in the United States and Switzerland STÀMPFLI VERLAG AG BERN 1998

2 Table of Contents Table of Authorities XI Part 1 : Introduction 1 I. Content 1 II. Relevance of the topic 1 1. The new Swiss Capital Market Law and the obligation of timely disclosure (ad hoc publicity) 1 2. European context 3 3. Race to the bottom vs. credibility and effective functioning of the financial markets - internationalization of the securities markets 7 Part 2 : Overview of corporate disclosure requirements 13 A. USA 13 I. Specifically regulated (structured) disclosure Scope of the provisions: Publicly held companies Filed disclosures Proxy Régulation - disclosure to the shareholders 16 a) Proxy Statement 16 b) Annual Report to shareholders 16 c) False or misleading statements in connection with proxy solicitations Management^ Discussion and Analysis (Item 303 of Régulation S-K) (d) of the Exchange Act 22 II. Unstructured disclosure: 10(b) of the Exchange Act and Rule 10b-5 (gênerai antifraud provision) Introduction to 10(b) of the 1934 Act and Rule 10b The duty to disclose or abstain of a trading corporation Obligation of a non-trading corporation under Rule 10b-5 29 a) Misstatements (affirmative misrepresentations) 30 b) Omissions (nondisclosure) in gênerai and the timing of the disclosure of material facts 30 c) Duty to correct own prior statements 34 d) Duty to update own prior statements 35

3 VIII Table of Contents e) Statements made by an outsider but with an implied représentation of the corporation 38 f) Rumors resulting from leaks attributable to the corporation or its agents Adéquate dissémination of nonpublic information 40 III. Rules and régulations of Self Regulatory Organizations 41 IV. State Law 46 B. Switzerland 47 I. Overview 47 II. Duty to disclose significant shareholdings in listed corporations Art. 663c of the Swiss Code of Obligations Art. 20 of the Swiss Stock Exchange Act 50 III. Listing Rules of the Swiss Exchange Periodic reports Ad hoc publicity 53 a) Purpose of the ad hoc publicity and target group 55 b) Interdependence of the ad hoc publicity with the broadness of an ongoing informational flow 56 c) Implied correctness of the released information; duty to correct and update prior own statements 57 d) New nonpublic facts 58 aa) Facts 58 bb) New fact - time of origin in a multi-step décision process 60 ce) facts which hâve arisen in the company's sphère of activity 62 e) Price sensitive facts (materiality) 63 aa) The (European) price sensitivity and the U.S. materiality standard 63 bb) Determining price sensitivity (materiality) 64 ce) "... because of their considérable effect on the issuer's assets and liabilities or financial position or on the gênerai course of business" 66 f) Timely disclosure, delays in disclosure and postponement 66 aa) Time of origin of the duty to disclose 66 bb) Postponement 67 ce) Postponement by the corporation or exemption from the duty to disclose by an administrative authority as provided by the EC directives? 68 IV. Criminal offenses pursuant to the Swiss Pénal Code 70

4 Table of Contents IX Part 3 : Economie aspects of the concept of mandatory disclosure 73 I. Securities markets without légal intervention Rule against fraud Self-induced disclosure Limitations of the self-interest model The Rôle of Stock Exchanges 78 IL Rationales for disclosure provisions of the securities régulation Increased public confidence in the markets Protection of investors Increasing the supply of material information 81 a) Allocation efficiency - increase of social wealth 81 b) Justification for the disclosure of basic financial and line-of-business data to ordinary investors Form of disclosure and prior administrative review 84 Part 4 : Corporate liability as a resuit of a violation of a duty to disclose 87 A. USA 87 I. Existence of a private cause of action Express (but no implied) liabilities under the 1933 Act Express liabilities under the 1934 Act Implied liabilities under the 1934 Act 91 a) Under 10(b) of the 1934 Act and Rule 10b-5 91 b) Under 14(a) of the 1934 Act and Rule 14a-9 92 c) Under 13(d) of the 1934 Act 94 d) Under SRO Rules 94 IL Eléments of Rule 10b "In connection with" requirement - standing to sue and to be sued Material fact 98 a) Standard of materiality 98 b) Uncertainties or contingencies 100 c) Extent to which opinions and statements of beliefs are facts 101 d) Forward-looking statements and the first prong of the safe harbor under the Securities Reform Act of Causation and reliance Fault requirement - scienter Damages 110

5 Table of Contents III. Extraterritorial application of Rule 10b-5 in the context of corporate disclosure 111 B. Switzerland 116 I. Existence of a private right of action and other sanctions Under Art. 20 of the Stock Exchange Act Misstatements and omissions with respect to nonpublic material facts (liability in the context of periodic reports and ad hoc publicity) 119 a) Administrative and pénal sanctions 119 b) Private right of action 120 IL Eléments that constitute liability under the obligation of ad hoc publicity Unlawfulness under Art. 41 of the Code of Obligations - rules that are designed to prevent damages as occurred Conduct creating liability Fault requirement 125 a) Scienter ("Vorsatz") 125 b) Knowledge of officers and directors is attributed to that of the company; 126 c) Liability of the company and of the executives 127 d) Conséquences Standing to sue Causation, damages 128 C. Conclusion 129