On April 25, 2024, the British Columbia Securities Commission (BCSC) issued BC Notice 51-703 (the Notice) to reinforce some of its expectations for disclosure of investor relations activities.
Investor Relations Activities Must Be Disclosed
Under the Securities Act (British Columbia) (the Securities Act), a person engaging in investor relations activities for an issuer, and the issuer itself, must disclose their relationship.
“Investor relations activities” are defined in the Securities Act to include: “any activities or oral or written communications, by or on behalf of an issuer … that promote or reasonably could be expected to promote the purchase or sale of securities of the issuer”.
The above-noted definition includes limited exceptions. For example, activities will not be considered “investor relations activities” if they (a) cannot reasonably be considered to promote the purchase or sale of securities of the issuer, and (b) are disseminated in the issuer’s ordinary course of the business to promote the sale of its products or its services, or raise public awareness of the issuer.
In the Notice, the BCSC reminds market participants that activities promoting the purchase or sale of securities generally constitute “investor relations activities” under the Securities Act. The BCSC notes that issuers often attempt to characterize activity as simply “business promotion”, “marketing”, or “market awareness” despite the fact that it includes the promotion of securities - including activity on social media or through influencers.
Disclosure Must be Clear and Conspicuous
The Securities Act further requires that any records disseminated as part of investor relations activities must “clearly and conspicuously” disclose the relationship between the person engaging in investor relations activities for an issuer, and the issuer itself (the Disclosure Requirement).
In a 2023 decision named Re Stock Social Inc. (the Decision), the BCSC explained that, to satisfy the Disclosure Requirement, the records must disclose that they were issued on behalf of the issuer and must be:
In plain language
In a prominent spot and in prominent font
Designed to catch the attention of the reader
The purpose of the Notice is largely to encourage market participants to review the Decision. This blog post summarizes the guidance provided in the Decision.
1. Plain Language
The Disclosure Requirement does not prescribe specific words that must be used to constitute “clear and conspicuous” disclosure. However, the Decision notes that: “the plain language could have said something like ‘Disseminated on behalf of [Issuer name]’ or ‘Paid advertisement on behalf of [Issuer name]’.
2. Prominent Place
The Decision explains that: “[T]o be displayed in a prominent place, [the disclosure] would have to be displayed at or very close to the beginning of a Record or at least close to the substantive portion of the Record. That disclosure should not be buried in legalistic standard terms and conditions that readers often skip.”
In particular, the BCSC notes that it is not enough to include the disclosure at the end of a document or disclaimer, because that would not have met “the requirement to be conspicuously disclosed given that many readers might not read to the end of a document in order to find that disclosure”, especially if they access the records “on their smartphones or similar small electronic devices, [so] they would have had to scroll at length to reach the disclaimer further reducing the likelihood it would be read.”
3. Catch the Reader’s Attention
The BCSC’s view is that, to satisfy the Disclosure Requirement, it is insufficient for a record to include a hyperlink to another website that contains the required disclosure. The Decision notes that “many readers would have had to take an extra step to click on the link, particularly if the link does not appear in proximity to the substantive content.” Investors would also need to know that the hyperlink would direct them to information about the relationship between the disseminating party and the issuer. According to the BCSC, a link that is merely entitled “disclaimer” or “legal notice” is likely not sufficient.
Enforcement by BCSC
According to the Notice, the BCSC has ordered administrative penalties against the following persons after finding breaches of the Disclosure Requirement:
A corporation and individuals personally for disseminating records for issuers without the required disclosure
Issuers and their management that failed to ensure that records disseminated on the issuer’s behalf were compliant
The Notice also states that the BCSC has entered into multiple settlement agreements with issuers and individuals responsible for breaches of the Disclosure Requirement.
Conclusion
Regulatory concern in Canada about promotional activity, including investor relations activities, continues to be at a heightened state. Persons engaged in investor relations activities, or engaging others for investor relations activities on their behalf, are encouraged to review the following in order to ensure that they comply with the Securities Act:
The Decision, which can be accessed here
The Notice, which can be accessed here
CSA Staff Notice 51-356 Problematic promotional activities by issuers, which can be accessed here
It should be noted that listed issuers must also comply with any applicable stock exchange requirements relating to promotional disclosure.
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DISCLAIMER: This post is intended to convey general information about legal issues and developments as of the date above. It does not constitute legal advice and must not be treated or relied on as such.