The Canadian Securities Administrators (“CSA”) has published CSA Staff Notice 51-356, Problematic Promotional Activities by Issuers (“CSA Staff Notice 51-356”). CSA staff have noted with concern instances by activities by some issuers that include questionable promotional or disclosure campaigns. These extend to the providing of unbalanced or unsubstantiated material claims about the issuer’s businesses and the corresponding opportunity for profit by investing in the issuer, which appear to be undertaken for the specific purpose of artificially promoting interest in the issuer’s securities. CSA staff are further concerned that these activities might artificially inflate the issuer’s share price and trading volume.
The CSA warns that any misleading behavior by issuers may result in a regulatory response.
The regulator has cited these examples that have given it cause for concern, including the:
- issuing of presentations, marketing materials, social media posts, or other information that describes early-stage plans with unwarranted certainty, or make unsupported assertions about growth of markets or demand for a product;
- publication of multiple news releases that disclose no new material facts;
- compensation of third parties, who use social media and general investing blogs to promote the interests of the issuers, but who do not disclose their relationship, compensation and/or financial interest;
- announcing of an issuer name and/or business change to reference an emerging industry or technology such as blockchain, cannabis, battery minerals, or cryptocurrency without a supporting business plan or comprehensive risk disclosure;
- announcing of a positive event such as a large acquisition then subsequently changing or cancelling the transaction with no announcement; and,
- disclosing of details about mineral projects that:
- suggest without direct evidence from sampling or exploration, that a property holds high potential for development including production;
- rely on projected peak versus long-term commodity prices; or,
- imply that a property holds a specific fair market value without a feasibility report.
CSA staff have issued requirements and guidance for promotional and disclosure activities, including:
- general prohibitions against false or misleading statements that could significantly impact the price or value of an issuer’s securities;
- general prohibitions against acts, practices, or conduct relating to securities that result in or contribute to a misleading appearance of trading activity or an artificial price for a security;
- requirements that every investor relations record disseminated by or on behalf of an issuer or security holder must clearly and conspicuously disclose that the record is being issued by or on behalf of that issuer or security holder;
- requirements that an issuer must not disclose forward-looking information unless the issuer has a reasonable basis for the information and requirements that any such disclosure must:
- identify any forward-looking information;
- caution users that actual results may vary from the forward-looking information and identify material risk factors that could cause actual results to differ materially from the forward-looking information; and,
- state the material factors or assumptions used to develop forward-looking information.
- requirements to update previously disclosed forward-looking information when events and circumstances occur that are reasonably likely to cause actual results to differ materially;
- guidance on general disclosure including:
- the types of events or information that may be material;
- avoiding exaggerated reports and potentially misleading promotional commentary;
- establishing appropriate board and senior officer oversight over oral, written, and electronic disclosures; and,
- issuers not participating in, hosting, or linking to chat rooms or bulletin boards; reinforcing the need to also comply with exchange disclosure policies.
- guidance reminding issuers to have rigorous social media disclosure controls with the expectation that issuers ensure that all disclosures regardless of venue are balanced and not misleading, including by/through:
- not making misleading statements;
- not excluding facts needed to avoid misleading readers;
- announcing material changes in a factual and balanced way;
- disclosing unfavorable news as promptly and completely as favorable news;
- avoiding exaggerated reports or potentially misleading promotional commentary;
- appropriately disclosing and using forward-looking information;
- not cherry-picking analysts’ reports; and,
- prominently disclosing when reports and articles are paid for by the issuer.
CSA staff have warned that promotional activities that they deem problematic may result in an enforcement action against any offending issuers or other regulatory responses. These can include requiring the issuers to:
- issue a clarifying news release;
- retract or remove overly promotional language from their disclosure record including their website and/or social media; and,
- re-file continuous disclosure documents.
CSA staff advise that they will continue to monitor the situation and intervene when and where necessary.
CSA Staff Notice 51-356 is available for download from the website of the participating jurisdictions.
For more information, please call Barbara Hendrickson at BAX Securities Law (416) 601 -1004.
This publication is not intended to constitute legal advice. No one should act on it or refrain from acting on it without consulting with a lawyer. BAX does not warrant or guarantee the accuracy or currency or completeness of the publication. No part of this publication may be reproduced without the prior written permission of BAX Securities Law.
