Samsys National Post Article. SAMSys Technologies Inc. was taught a harsh lesson in full and timely disclosure yesterday after comments its chief executive officer made to a media outlet drew the ire of market regulators.
It began on Tuesday morning, when Dow Jones Newswires first quoted CEO Cliff Horwitz as saying SAMSys had been selected by a large European retailer to supply radio frequency identification (RFID) readers -- an "absolutely enormous" contract which Mr. Horwitz said would make Toronto-based SAMSys profitable. The firm is a consistent money loser and had revenues of less than half a million dollars in 2003.
Mr. Horwitz said the deal was expected to be worth "several millions" of dollars to SAMSys, according to the story.
Trouble is, Mr. Horwitz's comments regarding this material deal were reported in a news item and not a full, formal and more widely disseminated company press release. This runs afoul of the requirements of the Toronto Stock Exchange Company Manual.
Further, since Dow Jones is subscriber-based, the story likely wasn't available to all investors at the same time.
Those who managed to read the Dow Jones story after it was first published at 11:21 a.m. ET on Tuesday didn't waste much time bidding up SAMSys stock (SMY/TSX). By 1:38 p.m., when Market Regulation Services Inc. (RS) halted the stock, it had already risen about 10% on the TSX.
RS, which monitors trading on the country's major exchanges, first contacted the company to get a handle on what was happening.
When that failed, the stock was halted.
"We wanted to get a hold of the company right away to find out what's going on -- why is there no wide dissemination of this news? Why is it just with Dow Jones?" said RS spokesman Doug Maybee. "There were signs that we're not talking about a level playing field here."
RS requested a formal press release and SAMSys finally put one out using PRNewswire-FirstCall at about 11:50 a.m. yesterday. It announced it had been selected as part of a consortium to provide radio frequency identification technology (RFID) to Metro Group, the world's fourth-largest retailer.
The much-heralded technology allows retailers and their suppliers can use to track inventory using radio tags and readers. Radio tags are said to be better than bar codes as they don't have to be in the line of sight of a reader to be recognized and can provide better information than the standard bar code. Wal-Mart and the U.S. Department of Defence are driving RFID adoption.
Following the corporate announcement yesterday, SAMSys stock resumed trading and rose another 3 cents to a close of $3.48 on the TSX.
In an interview, Mr. Horwitz conceded the company bungled the way the news was put out by first discussing it with Dow Jones.
"I thought the release was ready to go," he said. "I was under the impression that the story would run after the Metro announcement was made. I was sideswiped. I take absolute full responsibility for it."
The TSX Company Manual contains specific requirements on how news is to be disseminated by listed companies.
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After a company has notified RS of pending news, "a news release must be transmitted to the media by the quickest possible method, and by one that provides the widest dissemination possible," the manual states.
The manual also explicitly states that only using news services such as Dow Jones to publish news may not be enough: "Companies should be aware that these services do not carry all releases and may substantially edit releases they do carry.
"News services that guarantee that the full text of the release will be carried are required to be used."
In SAMSys' case, there was no corporate news release to begin with, only comments by the CEO. What Dow Jones published "was an edited story," Mr. Maybee said. "It was not a company news release that the disclosure policy requires issuers to do."
Mr. Horwitz, who said he was "horrified" when he found out the story had run even though a release hadn't been issued, said the company will take steps to ensure such an event doesn't happen again.
For now, it doesn't appear RS will invoke strong sanctions against SAMSys. Mr. Maybee noted the company is a relative newcomer to the TSX, having been trading only for the past two months. He wouldn't discuss possible sanctions, but went on to say that the regulator does not view the boondoggle as a malicious act.