Material Drilling News Disclosure - Case citedBCSC panel finds "spectacular" drill results not a material change Posted on August 22, 2013 On August 7, a three-member panel of the British Columbia Securities Commission unanimously dismissed allegations that Canaco Resources Inc. and four of its directors contravened the B.C. Securities Act by failing to immediately disclose positive drill results emanating from the company’s marquee property. Canaco was a TSX-V issuer with a property in Tanzania known as Magambazi on which it had made a gold discovery. On December 3, 2010, its board issued a significant number of options to directors and management. At the time of those grants, the company had in its possession undisclosed drill results from eight drill holes. In internal emails, the directors described the results as “just beautiful, “spectacular” and “fantastic news”. Canaco disclosed the drill results in three separate news releases on December 6, 9 and 22, 2010 (that is, after the option grants). Two of those news releases described the drill results as “spectacular”. On each of the three days that the drill results were announced, the stock price rose. On two of those days, the price increases were significant... The panel also found that the manner in which an issuer’s management (or others, such as the TSX-V) characterize the allegedly material facts, whether in internal communications or in public disclosures, is irrelevant to the assessment of materiality. The panel’s rejection, in its materiality analysis, of evidence of management’s use of superlatives thus reduces the risk of management becoming ensnared by unguarded internal communications. Efficient market According to the panel, the materiality test requires issuers to assume that the market is generally efficient. In a generally efficient market, all value-relevant information is quickly reflected in the price of the security. It follows that, in assessing whether a fact would reasonably be expected to affect significantly the value of a security, management is simultaneously answering the question of whether that fact would reasonably be expected significantly to affect the security’s market price. This finding suggests that management is not required to crystal-ball the stock market and is entitled instead to focus on whether the undisclosed fact changes the value of the business. That judgment will generally be within management’s area of expertise, thus reducing the risk of making materiality judgments. ... Finally, the panel found that an issuer does not violate the Securities Act by staggering the disclosure of non-material information. This finding will give comfort to managements in trying to manage news flow.