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Defamation by investors

Defamation by investors

Defamation by investor case where a shareholder was held liable for defaming a company

Shareholders who attempt to manipulate share price by spreading untrue rumours about the sate of affairs in the company and about the company’s leadership might find themselves facing a law suit for defamation.

When free speech becomes defamatory

Protecting the reputation of the company

Resolving conflicts and acting promptly in defamation cases

Defamation against members of the Board of Directors

When free speech becomes defamatory

In most cases, speech which relates to the company shares, performance and future prospects, particularly when exercised on the various online investment forums, would be considered protected speech if the statements convey the genuine opinion of the author. But even speech that is clearly designed to manipulate other shareholders, and to encourage them to either buy or sell shares in a company, this might still escape liability for defamation even if the defamatory statements are deliberate and even if the intention of the author was to smear. There are, however, situations where a line is crossed between protected free speech and defamation and this is where the defamatory statements contain personal allegations of corruption.

Corruption must be an action of individuals and therefore the defamatory statements alleging corruption will always be directed at the individuals who are responsible for the day-to-day operation of the company. These often will be company directors, company secretaries, company consultants and advisors, the accountants and the auditors. It might not be necessary to name names in those situations as legal responsibility to identify and prevent corruption is vested at the hands of the board of directors.

Mr Carp was a small investor in listed public companies who held shares in a gold mining company RRR PLC. As an active investor, Gary used to be involved in online investment forums such as Interactive Investor. At one point, Mr Carp started to post defamatory claims about the company on a number of online investors’ forums. He also promoted his defamatory posts and speculative rumours via Twitter. Over a number of weeks, Mr Carp posted dozens of defamatory posts about the company, some of which created heated discussions about the accuracy and truthfulness of the various reports by the company about its profits and investment plans. After a while, Mr Carp’s defamation campaign against the company started to appear on the first page of Google search results. Even though he was a very small investor in a large gold mining company, the intensity of his comments was so high that some investors started treat him as a credible source of information.

This resulted in a decline in investment in the company and in a sharp reduction in the value of its shares. Initially, the company took no action in relation to the defamation because the Board of Directors were yet to appreciate the potentially disproportionate damage that one small investor could cause a large PLC by posting defamatory comments on the internet. However, after they received numerous worrying messages from some of the larger investors, members of the Board of Directors were resolved to take action to save the company’s reputation.

Defamation in Financial Contexts Legal Advice FAQ

Free speech about company shares and performance is usually protected, but allegations of personal corruption against company directors or officials cross into defamation.

A company must balance the risk of seeming to suppress free speech against allowing defamatory posts to go unchallenged, as both can impact reputation.

Immediate yet tactful action is key, often requiring legal expertise in online defamation and reputational risk management to avoid further reputational damage.

Defamation against Board members involves both corporate and personal reputational harm, necessitating legal action by both the company and the individuals.

This case highlights that even a small investor can significantly damage a PLC's reputation online, demonstrating the power of internet forums and the need for prompt, expert legal intervention.

Protecting the reputation of the company

When considering whether to take legal action for defamation in relation to a company, there are two conflicting risks and desires, which become apparent. If the company allows the defamatory posts to go without an appropriate reaction, there is a risk that investors will assume that the defamatory posts are in fact true.

At the same time, if the company takes legal action with a view of removing defamatory posts from the internet, there is a risk that its actions will be perceived as an attempt to conceal legitimate (although unpleasant) information and to supress free speech. This could sometimes cause a far more serious damage to the company’s reputation than the defamatory posts the Board of Directors are trying to remove.

Company Defamation and Malicious Falsehood Legal FAQ

Company defamation and malicious falsehood are legal terms that refer to specific types of defamation and falsehoods that are targeted towards a company or business entity. The legal definition of company defamation involves making false statements about a company that harm its reputation and cause financial loss. Malicious falsehood, on the other hand, refers to intentionally spreading false information about a company with the intention of causing financial harm. Both company defamation and malicious falsehood differ from regular defamation and falsehood as they specifically pertain to the reputation and financial interests of a company rather than individuals.

Yes, there have been numerous cases where company defamation and malicious falsehood have led to significant financial consequences. For example, false negative reviews or false information about a company's products or services can damage its reputation and lead to loss of customers and decreased sales. In some cases, false allegations about a company's financial status or unethical practices can cause investors to withdraw their support, leading to a decline in stock prices and financial instability. Additionally, false rumours or misinformation about a company's management or key personnel can impact its ability to attract and retain employees, affecting its overall productivity and performance. The case of Paul Britton and Origin Design provides an excellent example of serious financial harm resulting from defamation and malicious falsehood.

The court considers the overall context of the business, including its size, financial health, and the nature of the market it operates in. It assesses the evidence of actual financial damage or the potential for future damage, looking for a direct causal link between the defamation and the financial losses. The court evaluates the extent of the loss relative to the business's usual financial status and considers whether the losses are substantial enough to impact the business significantly. Courts also look for a sound evidential basis for any claims of financial harm, requiring more than speculation or assumptions.

In UK defamation cases, 'serious financial loss' is a requirement for businesses claiming defamation and refers to significant financial damage directly attributable to the defamatory statement. There isn't a one-size-fits-all definition, as the impact can vary widely depending on the business's size, nature, and circumstances. For a large corporation, the loss might need to be substantial, whereas for a small business, even the loss of a single client might be considered 'serious.' Courts look at actual damages incurred or the likelihood of future damages due to the defamation.

A business can prove 'serious financial loss' by presenting concrete evidence of the financial impact of the defamation. This might include records of lost sales or contracts, evidence of client departures, and financial statements showing a downturn post-publication. The business must demonstrate a clear causal link between the defamation and the financial losses, which often requires detailed financial analysis and, sometimes, expert testimony.

Resolving conflicts and acting promptly in defamation cases

Resolving the various conflicts and risks that may be associated with legal action of this nature, requires a great deal of consideration, deliberation and experience. It was important for the company to act immediately, yet delicately, due to the potential additional reputational damage that legal action against an investor could have caused. The company therefore chose Cohen Davis to handle the matter.

Mainly, because of the unique and creative approaches we take to handling online defamation matters of this nature and due to our considerable experience in the field of reputational risks and reputational outcomes. In these sorts of cases there is likely to be additional media interest, which needs to be handled delicately, in order to protect the reputation of the company and to avoid negative publicity which could potentially result in a further decline in share prices.

Defamation against members of the Board of Directors

The Board of Directors hold fiduciary duty to the shareholders of the company and as such, it is the Board’s duty to protect the company from legal threats whilst securing as much stability as possible. There are particular difficulties when the defamatory posts attribute dishonesty to member of the Board of Directors, because this attribution is both corporate and personal. If a member of the Board of Directors is being harassed or defamed online, because of the work he performs for the company, the company will, in many cases, be able to take legal action on behalf of the director and the director will be able to take legal action on his own accord. Therefore, it is likely that any legal action for defamation or for harassment that a company takes, will have a strong element of personal attack of the individuals who are involved with the day-to-day operation of the company.

In the case of RRR v Carp, following abortive attempts to bring the matter to an amicable conclusion, RRR eventually decided to take legal action against him, in order to protect member of the Board of Directors and the company’s investors. Following the issuing of legal proceedings, Mr Carp accepted that all his allegations were unfounded, apologised and agreed to pay compensation which the company’s Chairman donated to a charitable cause.

This was a particularly challenging case, which encountered a number of new legal precedents and therefore a fair degree of risk for our client.

The choice was simple, to allow the defamatory posts against the company to gather momentum, destroying the reputation of the company and that of members of the Board of Directors, or to take the unusual step of initiating legal action for defamation against a relatively small investor. Whilst the outcome was considered a success, it had to be handled with patience, delicacy and care. The lessons of this case to a company that suffers defamation on the internet are numerous.

Firstly, it is clear that a single investor can cause a huge amount of reputational and financial damage, even to a PLC, by posting untrue stories and unfounded speculations on the internet. Secondly, a PLC, despite its size, might become vulnerable to online defamation as much as a small, private limited company. Thirdly, the influence of online investment forums on individual and corporate investors must never be underestimated by companies of any size. Fourthly, the cost of online defamation to a large, public company is likely to be far higher than it is to a small private company because it has much more to lose. And finally, the company’s Board of Directors in this case did the right thing by instructing a niche law firm that specialises in online defamation and reputational law to handle this matter promptly and delicately from all angles.

 

 

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