ASIC Lets Telstra Off The Hook

by Mary Swire, for LawAndTax-News.com, Hong Kong

15 December 2005

The Australian Securities and Investments Commission (ASIC) on Wednesday announced that it has concluded its investigation of Telstra and does not plan to take any enforcement action.

The investigation of Australia's biggest telecoms firm was in relation to suspected contraventions of the continuous disclosure provisions of the Corporations Act 2001 by Telstra during the period 11 August to 6 September 2005.

While ASIC's investigation will not result in court action, ASIC expressed concern that some of Telstra's disclosure procedures create potential risks to its ability to meet its continuous disclosure obligations in the future.

"We found a set of practices which cannot be regarded as acceptable for a corporation of the size and significance of Telstra to the Australian market, but which fell short of being appropriate for court proceedings," ASIC Chairman Jeffrey Lucy explained.

ASIC went on to reveal that it was concerned about three issues uncovered during its investigation.

The first was a senior Telstra executive giving part of a confidential briefing paper to representatives of the media in the week commencing 15 August 2005. The briefing was intended only for certain members of Parliament and their staff. The selective release of that document to others created speculation about its contents until Telstra released the full document on 7 September 2005, following discussions with ASIC. A clarifying statement that some aspects of the document should not to be relied on by the market accompanied Telstra's release of the full document.

"The release of confidential material by a senior executive of Telstra, without providing the document to the whole market, is an unacceptable practice, particularly where only part of the document is released," Mr Lucy observed.

"It can create a risk of confusion and did, in this case, lead to uninformed and unhelpful speculation about Telstra's prospects," he added.

Also of concern was a briefing to analysts following the release of Telstra's annual results on 11 August 2005. It is clear that some information given during that briefing was not available in Telstra's ASX announcements, either before or after the briefing. While the briefing was webcast, that is not a substitute for the clear requirement in the ASX Listing Rules to provide any price-sensitive information to the ASX in the first instance.

The third issue was the earnings downgrade announcement on 5 September 2005 and the apparent linking of the $850 million estimate of costs of regulation to the downgrade. ASIC's investigation found that there was no such direct link and that the wording of the announcement had the potential to confuse ordinary readers.

"I have written to the Board of Telstra summarising ASIC's findings and outlining our concerns to serve as a warning to the board and senior management to lift their game on continuous disclosure," Mr Lucy concluded.

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