Fundraising activity and ASIC intervention during COVID-19
- ASIC is stopping unsubstantiated claims in prospectuses about COVID-19 treatments and forecast returns.
- Any forecasts or forward-looking statements must have a reasonable basis.
- ASIC’s Corporate Finance Update newsletter has more information.
In the six months to 30 June 2020, ASIC has raised concerns with issuers, focusing on prospectus statements that may be false or misleading. This includes claims by issuers that they have a potential treatment or remedy for COVID-19.
ASIC reminds issuers that any forecasts or forward-looking statements must have a reasonable basis. Below are three case studies where ASIC intervened due to unsubstantiated claims in prospectuses about COVID-19 treatments and forecast returns.
Nutraceutical product and COVID-19 immunity
ASIC required a company to remove statements from the chairman’s letter about the community’s “heightened awareness of the need for immunity with COVID-19”. These declarations were preceded by statements that the company’s ‘nutraceutical’ product strengthened the body’s immune system and, by implication, improved consumers’ immunity to COVID-19.
Forecasts during market volatility
An issuer’s prospectus contained forecasts at the point in time when COVID-19 was beginning to impact business operations and markets were highly volatile. The issuer’s forecasts no longer had a reasonable basis and were therefore misleading. ASIC issued an interim stop order to limit the risk of investor harm.
Property with strong investment income
ASIC issued an interim stop order on a property investment company “targeting an annual return of 15%” and stating that it was suitable for investors looking for a “strong investment income”. This appeared to be contradicted by statements that dividends were unlikely to be paid. Extensive disclosure changes were required. Ultimately, the offer was unsuccessful.
Subscribe to ASIC’s Corporate Finance Update for more information.
Any forecasts or forward-looking statements in a company prospectus must have a reasonable basis.
ASIC is Australia’s corporate, markets and financial services regulator.