Securities: "honest" but "misleading" ends up with guilty verdict

John Hotchin, a director of Nathans, is already serving a period of "home detention," after pleading guilty to similar charges to those against Roger Moses, Mervyn Doolan and Donald Young. Moses, Doolan and Young will be sentenced at the beginning of September.

But it is the comment of the Judge when announcing his verdict that raises a disturbing question for those engaged in company management and investment, etc. banking.

The three were found guilty of distributing untrue or misleading statements in prospecti and advertisements

The Judge said that the three had not acted dishonestly but "objectively assessed, various statements in the offer documents were misleading primarily because they conveyed a false impression to potential investors."

The Judge has not clarified whether he considered them to have been negligent or reckless. Those would appear to be the only two alternatives to dishonesty.

It matters: if recklessness is now the test for information presented to investors or potential investors, that's probably a good and safe test.

But if negligence is sufficient to support a conviction, then the burden of information management is going to increase dramatically with all marketing statements being pre-vetted by committees with particular knowledge of different parts of the business. That will prove time consuming and costly.

The danger is that this test spreads out to comments in social media. Entrepreneurs are appalling at knowing what they should and should not say on Twitter, for example as they blurt out the latest thing to excite them.

The Nathans case creates a lot of questions and offers up few answers.