Wary Companies Find Mum’s the Word : Litigation: Beset by lawsuits, public companies are increasingly careful of what they say. More and more, they say is nothing.

After shareholders hit L.A. Gear with 24 class-action suits in June, lawyers for the Southern California maker of trendy footwear and clothing ordered executives to clam up.

L.A. Gear officials called off a planned dinner for securities analysts at a July sporting goods show in Chicago, prompting one Sutro & Co. stock watcher to cancel his trip there.

“The company had always been very good about communicating, and then all of a sudden they stopped talking,” said Jonathan H. Ziegler, who analyzes retail stocks for the San Francisco-based brokerage. “I didn’t want to just see their spring line.”

The upshot was that Ziegler, who had been high on the company for years but had issued a “hold” recommendation at $48 a share, began telling investment clients that he could offer them no guidance on the stock whatsoever. Meanwhile, the shares have sunk to $14.25.

With disappointed investors increasingly taking to the courts to complain about what they see as fraud or deceit by management, more companies are finding themselves in the position of L.A. Gear. To speak or not to speak about rosy projections and new miracle products becomes the question. If companies want to play it safe, mum should be the word.

That was the message to Ziegler and about 340 other executives and investment professionals at a seminar held recently in Palo Alto by Morrison & Foerster, a San Francisco-based law firm.

Titled “Disclosures to Analysts and the Press: Avoiding Shareholder Litigation,” the session was an attempt to guide concerned companies through a minefield of confusing and seemingly conflicting requirements about what they should reveal, and when.

Companies looking for strict guidelines, however, were told that they were out of luck. “There are no clear rules that you can look up,” said Joseph A. Grundfest, a former Securities and Exchange Commission official who now teaches at Stanford University’s law school. “A great deal boils down to common sense.”

Grundfest added that companies choosing to maintain an open-door policy should be careful to reveal material information to all analysts.

“Why would you want to disclose some information selectively to a particular analyst . . . ahead of another?” he said, urging companies to avoid the “inadvertent slip of the tongue” that can get them into trouble.

William D. Sherman, a Morrison & Foerster attorney who spoke about the scarcity of law on the subject, noted that companies have “absolutely no duty to disclose material inside information” unless required by securities laws.

Yet confusion can reign, he said, when companies attempt to abide by stock exchange guidelines. He cited a passage in the New York Stock Exchange manual stating that “a listed company is expected to release quickly to the public any news or information which might reasonably be expected to materially affect the market for its securities.” The document goes on: “But a corporation may be excused from announcements when there is a valid reason for doing so.”

The best way to avoid lawsuits is “to tell the truth,” said William S. Lerach, a San Diego attorney who has represented shareholders against companies in more than 200 cases in the past 15 years.

“It’s very simple,” he added. “That’s all the federal law says. Don’t conceal your problems. Don’t fib.”

Lerach is the lead counsel on the L.A. Gear suits, which were recently consolidated into one complaint. He said companies should beware of hype. L.A. Gear shareholders, for example, allege that officials falsified financial statements and misrepresented the beneficial effect of a highly touted promotional deal with entertainer Michael Jackson.

Kevin J. Ventrudo, L.A. Gear’s chief financial officer, declined to comment.

Although companies often settle such shareholder suits, frequently for tens of millions of dollars, L.A. Gear has “vowed to litigate to the bitter end,” according to Lerach. (Law firms generally take these cases on a contingency basis, receiving 20% to 30% of a settlement or jury award. Lerach noted that plaintiffs in any given case may be represented by as many as seven law firms, with the fee split among them.)

Lawyers’ warnings aside, some companies still believe that openness is the best policy.

“The more you tell about the company, and the quicker you tell it to the widest possible audience, the less likely you are to run afoul of the traps artfully scattered in the shifting sands of the securities laws,” Marvin L. Krasnansky, a spokesman for San Francisco-based McKesson Corp., told the seminar participants. Krasnansky said the company, a distributor of pharmaceuticals and bottled water, has developed a reputation for timely disclosure and has benefited from extensive coverage by analysts.

Although participants went away with the overwhelming message that silence is golden, it’s unlikely that lawyers who represent shareholders will be running out of business.

As Leonard D. Simon, a colleague of Lerach, told the audience: “Why should I be here telling all you people how not to get into trouble? Because I’m sure you won’t be able to follow my advice.”