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Hoaxes, stock exchanges and real-time reporting


CPA Australia chief executive Alex Malley reflects on environmental activist Jonathan Moylan's landmark case, whose hoax press release made drop $300m the market value of mining company Whitehaven Coal

As accounting and finance professionals we all have a well-developed appreciation for the centrality of financial and corporate reporting to the integrity of the capital markets. Yet it seems with each passing day, the provision of relevant, consistent, verifiable information with meaningful assurance to investors and the broader market in the digital age gets exponentially more difficult. A case in Australia serves to illustrate the day to day operational challenges being confronted by companies and their advisors around the globe in dealing with the real-time pace of communication - and miscommunication.

A recent decision of the New South Wales Supreme Court imposed a wholly suspended sentence on an environmental activist for issuing a false press release announcing the ANZ Bank had withdrawn its $1.2bn loan from a Whitehaven Coal project. While the court's decision marks the end of a battle, it is just the latest chapter in what is a long running, new age war being waged across international boundaries.

While some saw it as a non-violent direct action of an environmentalist designed to focus Australia's attention on the role of financiers and miners in propelling climate change, others saw the bogus press release perpetrator as no more than a person manipulating the share market and damaging its very integrity. With more than 40% of Australian adults owning shares directly or indirectly, any hoax could have a significant effect on the lives of many, including mum-and-dad investors and self-funded retirees.

Whichever side you come down on, the case is an example of how false or misleading information circulating in the market can have serious consequences. While the fake was never published on the Australian Stock Exchange's (ASX) official platform it was picked up and reported online by numerous media outlets. In less than 40 minutes of misinformed trading, and until Whitehaven Coal's shares were placed in a trading halt to correct that false market as required by ASX, about 2,490,000 trades were thought to be enacted by day traders and those who implement stop losses, dropping the share price by 8.8%.

There are some important lessons here for journalists and investors alike. First and foremost, the case reinforces the importance of the verification of information. In Australia, companies that make announcements are required to submit them to the ASX for publication on its website. The Whitehaven Coal press release would have been there if it was real. But an apparent failure to check would appear, in this instance, to have played a major role in taking a simple hoax to new heights.

The ASX has previously warned media that they should consider slowing the speed at which information is being digested and reported and before reporting information or trading on it, at the very least check the ASX website. That is common sense advice, however in the frenetic 24/7 news cycle the pressures on journalists and the diversity of news sources have never been so great.

You only need to look at the prevalence of high frequency trading to see that microseconds matter, and that applies as much to traders as it does to journalists. In that context one can almost forgive the temptation to rush to print (or post, or Tweet or the other myriad of ways in which content is distributed today). And it is not just a problem confined to Australia.

The case itself bears a striking resemblance to similar cases of online activism where hoax press releases have targeted the likes of Bank of America, General Electric and, just this month, Intel. For companies and their advisors, these cases also underline the need to closely monitor what is being said about them, as well as to them, online and in the market.

In the case of Whitehaven Coal, some commentators called for reversal of trades to be made as a matter of fairness to all who traded. It was a call the ASX rejected. Indeed the ASX's chief compliance officer said then that "the people who are affected are the day-traders and those trading in the short term...", a group of people ethicist Clive Williams of Charles Sturt University described as making "... no contribution to the real economy and... essentially parasitic... And for each gambler who sold at a loss there was another who made money that day."

But while mum and dad investors might have escaped largely unscathed in this instance, the next rogue action might have more widespread implications.

Alex Malley's previous blog post
Markets demand collaboration on audit quality

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