The B.C. Securities Commission (BCSC) issued a BC Notice today to raise awareness of a 2023 Commission decision about promotional disclosure, and how it must be presented to comply with the law.
The decision, Re Stock Social Inc., interpreted a Securities Act provision that investor relations records must “clearly and conspicuously” disclose if they are disseminated by or on behalf of an issuer or security holder. This applies to promotional and marketing materials, including social media posts by “influencers.”
The BCSC panel’s interpretation of the Act’s requirement for clear and conspicuous disclosure was the first of its kind in Canada, and is binding on issuers and promoters in B.C.
The panel said an investor relations communication that aims to promote the purchase or sale of securities of a particular company – or reasonably could be expected to do that – must disclose it was issued on behalf of the issuer (when an issuer has engaged a person to do this activity), and must be in plain language. For example, the communication should say that it was “disseminated on behalf of” the company, or is a “paid advertisement on behalf of” the company.
The disclosure, the panel said, must appear in a prominent spot, “at or very close to the beginning of” the communication, “or at least close to the substantive portion.” It “should not be buried in legalistic standard terms and conditions that readers often skip.” It also must appear in a prominent font.
The disclosure should be designed to catch the attention of the reader. A link to another website containing the required disclosure requires readers “to take an extra step,” the panel said. A link to the required disclosure is ordinarily not sufficient – it must be part of the communication.
The Stock Social decision found that the B.C. marketing company and its CEO repeatedly violated the Act by not adequately disclosing that it distributed advertorials and social media posts on behalf of five companies involved in mining, technology and cannabidiol (CBD) products.
The advertorials — which were disseminated on newswires, websites and social media — were usually written like news articles but did not disclose risks or any other negative factors about the issuers that one would expect from objective reporting. None of the advertorials made clear that they were on behalf of the issuers, and although some indicated a fee had been paid for dissemination, they did not say on whose behalf. When disclaimers did appear, they were not placed in a prominent place for the reader to easily notice.
“The Commission panel laid out specific expectations for the level of clarity and candor it expects to see in promotional material,” said Brenda Leong, the BCSC’s Chair and CEO. “The integrity of our investment market depends on that clarity and candor, because investors need to be able to assess the objectivity of the information they’re receiving. Companies and promoters should be aware of these expectations, which the BCSC will continue to enforce.”
