Electrovaya Inc. reaches settlement with OSC over unbalanced news releases
June 30, 2017
OSC staff conducted a disclosure review in 2015, which found five press releases that made significant positive announcements were unbalanced.
The Ontario Securities Commission has reached a settlement agreement with Electrovaya Inc., a Canadian lithium-ion battery maker, that will see its chief executive officer pay a $250,000 penalty and the appointment of an independent chair of the board.
According to the settlement agreement released by the OSC on Friday, the Mississauga-based company issued unbalanced news releases that were “contrary to the public interest” and failed to update forward-looking statements and provide accurate descriptions of its business, putting it at odds with securities law.
While the company itself won’t face a financial penalty, chief executive Sankar Das Gupta has agreed to pay an administrative penalty of $250,000 and the cost of a consultant review of the company’s corporate governance, as well as take a course on proper disclosure.
“Electrovaya and Dr. Das Gupta are committed to meeting corporate disclosure standards and regret that they did not satisfy such standards,” Electrovaya said in a statement released Friday morning. “As a result of the inquiry by OSC staff, the company has already taken steps to improve its continuous disclosure.”
According to agreed facts outlined in the settlement agreement, Das Gupta, who was the chair of its board of directors and the disclosure committee, failed to comply with Ontario securities law by “authorizing, permitting or acquiescing in Electrovaya’s non-compliance.”
OSC staff conducted a disclosure review in 2015, which found five press releases that made significant positive announcements were unbalanced. OSC staff said that “most” of the statements implied significant revenue potential for the company but failed to contain an “adequate discussion of risks, contingencies or barriers to crystallizing the arrangements.” Some of the press releases did not provide sufficient details for investors to understand the nature of opportunity and whether it could be realized.
“In some cases, the initiatives represented non-binding letters of intent, rather than non-cancellable contracts, which made the initial announcements incomplete in the absence of other disclosure outlining the risks, contingencies and barriers involved in realizing these amounts,” reads the settlement agreement.
“When events occurred which made it likely that the contracts and revenue opportunities … would not transpire (such as the potential customer’s decision not to proceed with the arrangement) the company failed to provide adequate disclosure.”
After its 2015 review, OSC staff allege that Electrovaya continued to issue unbalanced press releases announcing positive relationships.
Five press releases were issued between May and Sept. 2016, several of which included a revenue amount Electrovaya expected to earn from those relationships, amounting to “many multiples of the company’s historical annual revenues.” None of the press releases contained balanced disclosure discussing the nature of the agreements, which were often non-binding.
Under the settlement agreement, Electrovaya has agreed to have its corporate governance framework reviewed by Hansell LLP, which includes its disclosure policies. Electrovaya said it has already named independent chairs for the disclosure committee and its board, two of the terms of the settlement agreement.
Shares of Electrovaya fell on Friday, falling 3.1 per cent to $1.24 at 12:50 p.m.