A public company, its CFO, and its SVP of Sales were censured and fined nearly $2 Million for providing misleading revenue guidance in a press release, during analyst calls, and on Form 8-Ks. The SEC accuses the respondents of providing inflated forward-looking revenue targets when they knew, or should have known, that such targets would not be achieved. According to the SEC, the respondents knew that the sales pipeline was weaker than expected and that the company pulled revenue into a prior year period. When the company revised the revenue target down later in the quarter, the stock price fell more than 33%.
OUR TAKE: The lesson here for fund managers is to avoid forward-looking or target performance projections. If the rosy predictions ultimately fall short, the SEC will retrospectively review all internal communications and activities for any information that might have suggested lower numbers. We recommend discussing performance through the lens of the rear-view mirror rather than the windshield.