Novogen : Unacceptable Behaviour (Part I)

I have previously expressed my highly negative opinion about company executives that informally engage with shareholders through “permitted” 3rd party communications on trading platforms such as HotCopper and Sharetrader Forum. By this, I mean when an (apparently) influential shareholder reaches out to a senior executive, possibly even the CEO or Chairman (in the case of Novogen, it is one and the same) with a series of questions to which a response is received and the “answers” posted with permission on a trading platform.

There are a number of reasons why I despise this kind of irresponsible, cowboy-ish behaviour:

1) Such behaviour sails perilously close to the wind in terms of ASX listing rules. In my opinion, the basic s3.1 continuous disclosure requirements are problematic in this scenario because the concentration and timbre of information, often combined with the glowing sentiments of the “poster” (I’ll get to that in a second) can significantly amplify or distort information that may be contrary or interpretatively different to prior formal disclosures from the company and, as such, a “reasonable person” (this is mostly a low bar on HotCopper) might view the disclosure as having a “material effect”. Particularly if such a disclosure is perceived as receiving the back-up and support of shareholders that are clearly influential enough to elicit such information from a company.

2) Breach of s3.17. In my opinion, there is a potential s3.17 issue when an executive/officer/director of a company discloses information to a shareholder via an email exchange, and this document is then propagated to a shareholder class by a “poster” (i.e. on HotCopper, to ordinary shareholders) with the actual or implied consent of the executive. In other words, the poster is effectively acting in an agency capacity to the company and is conducting an act of information dissemination to ordinary shareholders on the company’s behalf. In such a scenario, it is the company’s regulatory responsibility to provide this communication to the ASX and comply with any rules associated with a disclosure. In the case of Graham Kelly’s most recent engagement in this kind of appalling behaviour, it is even worse – he has allegedly asked a member of the HotCopper forum to serve as an information dissemination channel between shareholders and the company, further cementing the perception (in my view) that a particular shareholder is acting in an agency capacity.

3) The editorial privilege of the “poster” is entirely unregulated by the company. Readers of detailed information that is allegedly passed on from a company executive (with “permission”) have no way of knowing whether the information provided is actual, adulterated or modified, or even embellished in some material way. Moreover it is posted by someone anonymously with no accountability to readers. In fact, in my opinion, it doesn’t even really matter whether the information is transcribed verbatim or not from an email or document exchange, there is effectively an augmentation by virtue of the fact that it is posted by a shareholder with sufficient clout to garner a detailed and slightly sycophantic response from a busy CEO, and who has disclosed that they hold a position/sentiment in the company. If the information provided is designed to propagate a positive sentiment and the poster is a shareholder (possibly even with a “buy” sentiment) this is a massive conflict of interest.

4) Personal opinions can be enunciated without clarity or consequence. When an executive, officer or director of a publicly-traded company makes a formal statement, they are always made on the basis that the individual is representing the company as a legal personality, and it is an approved statement. When a CEO or Chairman makes a statement that is his/her own opinion, and not that of the company, it is standard practice for this to be clarified. In the case of posts made “on behalf” of the company, personalised sentiments – e.g. “Graham believes that what Novogen is doing is going to be transformative in medicine”, while possibly not inconsistent with the overall position of the company, is a personal statement. Such personalised statements are highly emotive and, when combined with informally disclosed but detailed information, have the potential to be inappropriate at best, and misleading at worst.

5) A trading platform does not represent a total share class. It is extremely bad form to release information to a class of shareholders, but to do so in a way where the class – as a whole – doesn’t have the equal opportunity (time, visibility, access) to process the information and determine whether there is market impact. At one extreme, this could be interpreted as an act of shareholder favouritism/oppression (depending on who gets the information and who doesn’t). At another extreme – from ASIC’s vantage – it could be interpreted as failing to execute on the appropriate disclosure rules to enable the market to uniformly determine the impact of the information (formal and correctly timed disclosures, use of trading halts, etc.).

6) No “safe harbour” for forward looking statements. Such disclosures don’t normally contain the typical investor “safe harbour” disclaimer that makes it clear that the information is forward-looking or speculative. Such disclaimers are not merely for the purpose of “covering the ass” of a company, it is also to inform shareholders of the risks and uncertainty of interpreting publicly disseminated information about securities when making personal investment decisions. This means that potentially, if someone detrimentally relies on that information, both the company and the “authorised person” (i.e. the poster acting in an agency capacity) put themselves at risk by not adhering to best practice.

The bottom line is this. If you are not a shareholder but you are thinking about investing in companies that engage in this kind of behaviour, you should be extremely wary and it should impact your perception of the quality and relative risk of the company, on top of all other factors under consideration. If you are a shareholder, you should be royally pissed-off that an executive of your company takes these kinds of unnecessary risks. It’s only going to take one lawsuit and an insurance firm to decide that they are not going to pay out on a D&O insurance claim, and you are going to see shareholders get burnt.

Now let’s get to Novogen specifically.

All I can say is WOW. I have never seen such blatant and tasteless collusion to manipulate shareholder perception. The most recent example is truly stunning and I intend to review the troublesome claims. More to follow…


Photo Credit : FIFA ( Also a dodgy organisation.


11 thoughts on “Novogen : Unacceptable Behaviour (Part I)

  1. Agree 100% with this………also replicated on the Novogen “unofficial” face book page.

    Erik Tyler
    June 5 at 11:03pm
    Each month I am running a “Q&A” topic on HotCopper – something the CEO, Graham Kelly, is passionate about is shareholder communication, so he has embraced this.
    If you have an issue you would like to be raised with GK, please list it in this thread. I will progressively compile a list and publish it, so everyone can see the current position, then start a new list once the last one has been sent to GK.
    The first list is almost complete, so if you have anything to add, please reply in the comments below within the next few days – thanks!


  2. I agree with A, that this happens all the time with analyst briefings. So long as company directors apply the same principle that market sensitive information is not disclosed to any shareholders they engage with, as they do with analyst briefings, there is no issue.

    With regard to your particular comment about individuals then sharing information “with the actual or implied consent of the executive” – this is not a problem. It would be more of an issue if the opposite was done and any information was provided on the basis of secret ‘non-disclosure’ basis (why the lack of transparency and secrecy?). I think individuals, seeking ‘permission’ to share information is just a polite way of letting management know that it will be shared widely. In all my dealings with ASX companies, my understanding has always been that directors will only ever disclose information that they are happy to be in the open and shared widely. If this is not the case, then it is likely to be a breach of ASX rules. All the info I have sought directly from companies is no different to the information sought directly from directors by analysts or through analyst briefings.

    Analysts are free to ask questions through analysts briefings, or even directly through the company by just calling them up. They share this information with their clients. The information should not be market sensitive. I can ask exactly the same questions and then share the answers with my family, on a blog or whatever with the ‘agreement’ of the directors – but in reality, it’s no different.

    You are making a mountain out of a molehill here.


    • Hi Chad, since you and “A” are on the same page, I’ll answer you together. There is no “mountain out of a molehill” here.

      1) An analyst is simply not a punter on HotCopper. Although there have always been challenges with managing the conflict-of-interest between financial incentives for analysts that are part of firms that offer full-service brokerage (i.e. have a sell-side) there are both regulatory (ASIC) and professional conduct (i.e. IOSCO) constraints that limit personal positions in securities, direct collusion with sell-side (depending on the market cap/trading volume of the firm this is a greater or lesser issue) and other conflict of interest issues related to confidentiality (if the firm is also engaged in underwriting) and product positioning. A chat with an analyst is generally not considered to be a “shareholder class” communication until something is published in the public domain, even if it is a non-confidential discussion.

      2) The “rules of engagement” with an analyst are very different and well understood by most sophisticated officers/directors of a public company. Anything told to an analyst should obviously be in the public domain or imminently so. However an analyst report is (notionally) an “independent analysis”, not a regurgitation from the management team. In THIS case we are talking about a communication (in the case of Novogen, verbatim) from the management team, not an analyst. I realise that in Australia we have almost no objective analysis of the ASX life-sciences/biotech scene, but in the US an analyst report is expected to be objective, de-conflicted and just as possibly downgrade an equity as upgrade.

      3) An analyst is identifiable as an analyst. The people on trading platforms are anonymous. As a consequence it is difficult to assess the integrity of information, notwithstanding that obviously some of these posters (and shareholders) evidently have plenty of clout and rapport with the CEOs/Directors of the companies that they are enthusiastic about. Unless I am mistaken, neither of you are analysts because if you were, you would be doing yourself a professional disservice and you would also be violating the terms of the HotCopper website because analysts are licensed if they are recommending financial products (I do not recommend financial products and therefore I am a “journalist – I prefer “hack” – and not an analyst).

      4) Analysts – at least respectable ones – write public opinions that are objective and defensible. They do not typically include emotive and forward-looking statements and quotations directly from the management team.

      5) Consent matters. Analysts don’t seek or require the consent of management to publish an equity report. When consent is granted to a 3rd party to convey information to the public domain, this implies that it is the responsibility of the management team to make sure that the disclosure is lawful, and that includes compliance with the disclosure rules.

      In the case of the Novogen communication, I will (shortly) argue that there is guidance in that post, which is inconsistent with the public domain information about the company.

      Thanks for reading.


      • Following on from my earlier comment, I think some of your criticisms are valid. For example, the ability to ensure the fidelity of the information is preserved as it passes through various hands; and the issue of whether one group of investors is receiving more information than others. A far better approach would be to have the ability for all shareholders to submit questions via the company website and for all answers to be put on the website, not disseminated via a chat room. (Although I haven’t checked whether Novogen is doing this, perhaps it is)

        However, I think in your hurry to discredit your ‘favourite’ biotech you may be missing a bigger picture. Which is this: you are criticising a company for communicating too much. The number one complaint by shareholders in Australia (biotech or otherwise) is that they are told nothing. Yet here is a company stepping forward and providing more information and, while the method probably should be refined, the sentiment should be applauded.

        Compare to, say, Alchemia. An unexpected Ph3 failure with quite strange control group results – nothing from the company for month and months even though further analysis was promised. A contract for the sale of fonda that shareholders know nothing about, yet its the lifeblood of the company. Various other assets (VAST) that a struggling company perhaps should be selling, but nothing. The recent trading halt when the fonda sales were in doubt and shareholders were guessing left right and centre what the reasons were. People are desperate for information about something, anything. Yet, total silence.

        Novogen should be applauded for what it is doing. Yes, it needs to bed down the process and cross the legal ‘t’s. But surely a company giving out information (even if, as seems to be the case, you see it as marketing spin and not true information) should not be seen as doing wrong. Its a company with (from my quick check) $40m+ in the bank; it hardly needs to be spinning in the hope of making a quick buck. Perhaps it is, truly, a company trying to do the right thing – not getting it quite right first time, but easily fixed.


      • Hi “A”,

        I appreciate your perspective. Believe it or not, I am not on a mission to discredit Novogen – and as soon as Novogen does something right, I will acknowledge it and give it the credit it deserves. I REALLY dislike Novogen’s communication strategy and particularly Graham Kelly’s communication style because it is factually limited and is borderline scientifically inappropriate. He makes claims that are simply not substantiated, are way over-dramatised (“we are about to make history” when all the company has done is kill a few cells in a petri dish or a rat model), and are so far away from best practice the pharmaceutical company, it is laughable.

        The comments you make about “news flow” in biotech is not a uniquely Australian problem. Unfortunately, biotechnology is not a “real-time” activity until a product is selling. That’s just the business. You might want to get a dog-by-dog breakdown of a clinical study (a la PharmAust) or the news that a patent has been filed (as Novogen and Prima are fond of doing) but all this really means is that you are just a fickle investor that would just as soon put your money in a retail stock or a junior mining company to make a quick buck. If people don’t understand that newsflow is patchy for a baby biotech company, they just shouldn’t invest.

        It’s about quality of information, not quantity.

        Frankly, I don’t care about punters – I care about whether a company credibly positions itself for long-term added-value. I want the guy (or gal) who decides they are going to allocate part of their SMSF to life sciences (with all the portfolio risk that this entails) to not have to spend every day on HotCopper reading trading rumours in order to determine whether an investment has prospects or not. The real problem with Australian life sciences is that many – not all, but many – companies are simply shit and have no basis to make the clinical or scientific claims that they do. But because a CEO is charismatic, social media is fairly effective and anytime anybody farts the stock price jumps by 30% – everyone piles in. But the end result is that all we have is a market perception that, in the limit, all you really do is lose money on biotech. In otherwords, in the long term, this practice damages Australia’s prospects to really be a leader in the space.

        Finally, “A”, there is a pervasive misunderstanding about what my site is about. I don’t care about who makes money or loses money on biotech stocks. What I care about is weeding out the wheat from the chaff and building a sentiment that Australian innovation is actually worth investing in. Not speculating on (Novogen is not an investment, it’s a speculation). But investing in.

        Does that make sense?

        Thanks for reading.


  3. If Novogen has provided guidance through hotcopper they should be investigated by ASIC and punished accordingly. Irrespective of the forum market sensitive information is divulged in, whether it be through twitter, facebook, an analyst briefing, email, a telephone convo, hotcopper or any other method – if it is not done through the ASX it should be investigated.

    “5) Consent matters. Analysts don’t seek or require the consent of management to publish an equity report. When consent is granted to a 3rd party to convey information to the public domain, this implies that it is the responsibility of the management team to make sure that the disclosure is lawful, and that includes compliance with the disclosure rules.”

    On the subject of consent, I have never felt the need to seek consent from any of the directors I have communicated with. It is their prerogative to not disclosure market sensitive information, not mine. Whether others seek ‘consent’ or not should also be irrelevant, because directors should never be disclosing market sensitive information through any means other than through the ASX anyway.

    For example:

    Scenario 1 – I ring the company, speak to a director and ask, “Do you have plans to do a cap raising in the next 12 months?” Director answers: “No.” I hang up and go off and post it on twitter, facebook, hotcopper, my blog, linked in, I tell my grandma, my dog, goldfish etc.

    Scenario 2: I ring the company, speak to a director and ask, “Do you have plans to do a cap raising in the next 12 months?” Director answers: “No.” I then ask, “Can I get your permission to tell others about this, share it with my goldfish, twitter follows, hotcopper etc?” Director: “Of course, it’s not market sensitive, we’ve never flagged any intention to raise capital and its obvious from our accounts that we’re sitting on more cash than we need and are fully funded for the foreseeable future.” I go off and post it on twitter, facebook, hotcopper, my blog, linked in, I tell my dog, goldfish etc that I have spoken to the company, confirmed a cap raising is not on the cards for at least the next 12 months, and he gave his consent for me to communicate this to the world”.

    You’re suggesting that because I sought “consent” in scenario 2, suddenly it’s a problem now?


    • Hi Chad,

      I knew that I recognised your gold fish’s comments on HotCopper 😉 (Joke).

      So, my assertion is more basic in the case of Novogen and I will be shortly posting a comment by comment analysis of that particular communication. Mostly, I just don’t like the communication strategy but there are some grey areas that I will address separately.

      Regarding your scenario 1) and scenario 2) above (which I enjoyed – and they are crystal clear) I agree that that onus on appropriate information disclosure and disclosure process lies with the company. I personally don’t approve of random shareholders randomly calling up public company CEOs – if I received those kinds of questions, I would ignore them because there are obvious risks associated with poorly controlled communication. But I do agree with your comments.

      The issue I have with the recent Novogen communications is the collaborative and iterative nature of the disclosure. The CEO has even allegedly asked a member of that forum to ACT ON HIS BEHALF. In my opinion, the “consent” to share information with the forum in this context is problematic.

      So – this means (in your style):

      Scenario 3: I email the company and communicate with a director and ask a bunch of questions, to which I get a detailed list of answers. I then share those answers (explicitly with the director’s permission) on HotCopper. The result is a flood of comments and questions about the information. I then take that deluge back to the director who says “Chad, I’m really busy – why don’t you act on my behalf and concentrate the feedback and act as my go-between for responses.”

      Now what exactly is the relationship between the “poster” on Hotcopper and the company? You cannot really describe it as a passive relationship, can you? Additionally, the identity of the poster is not known, there is no regulation of the “editorial privelege” of the poster (i.e. information can be added or removed) and if the poster is perceived as being influential enough to not only garner detailed responses but then “serve” in an agency capacity to channel information on a trading forum, don’t you think that this then “amplifies” the importance of the information and makes the position of the poster more “distinct”?

      As a trader (“professional” or otherwise), how do you feel about a security when some guy, with a strong degree of visibility, obviously a shareholder (disclosed, with a buy sentiment), who appears knowledgeable about the company, who appears to have a close and friendly (even familiar?) relationship with the CEO, shares a bunch of information that has a positive sentiment to it, and is even asked by the CEO to collate feedback from other shareholders?

      How does that make you feel about that information source? Good? Trusting? Does it make you feel like something good is happening? Might it induce you to keep your position, or even augment it?

      Let me quote:

      Perhaps the questions become a monthly agenda that can be put together on hotcopper. Based on number of likes he picks say the top 20. If this was done monthly he could then also have this as a regular on the company website in similar fashion to the blog and used as PR to email as a regular blast to newsletter subscribers and on the website for browsing current and would be investors. I think the value in this would be 100 fold what is currently in place. This would create huge awareness, massively enhance the PR of the company and also make this a little less blurry in terms of disclose of information etc… The boost of investor sentiment that this would create = A more profitable and hopefully sustained share price.

      (Source :

      If Graham Kelly agrees to do this, he is now colluding to primp the share price.


  4. Pingback: Novogen : Unacceptable Behaviour (Part II) | The Long Tail

  5. Hi cbehrenbruch,

    It seems like informal methods of shareholder communication are widespread, but I agree that this doesn’t necessarily make it a good thing.

    From my casual observations, it commonly occurs within the firms you have been putting under the spotlight. This one (from CYP) is a good example.

    I cant help but wonder if there is a correlation between these activities and your interest in these organisations?


    • Hi Dick,

      You don’t have to “wonder”, it’s very simple. Companies that have a grown up and appropriate communication strategy tend to be better quality, at least in ASX biotech. It is absolutely possible to generate quality news flow and shareholder engagement even with a small development pipeline.

      Companies/execs that produce this kind of sensationalist drivel are generally representative of poorer quality investment prospects. Since my stated (perhaps slightly arrogant and over ambitious) goal is to improve quality by separating “wheat from chaff” the correlation you have commented on “occurs”.

      Thanks for reading.

      Liked by 1 person

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