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The Canadian Securities Administrators has issued notice cautioning companies to avoid promotional activities that may artificially increase an issuer’s share price or trading volume, or may mislead investors.
Venture market issuers, directors, officers, promoters, employees and investors relations consultants should consider themselves warned. The Canadian Securities Administrators ("CSA") published CSA Staff Notice 51-356 - Problematic Promotional Activities By Issuers cautioning companies to avoid promotional activities that may artificially increase an issuer’s share price or trading volume, or may mislead investors.
The CSA Staff Notice was issued to illustrate some of the specific problems the CSA identified and reinforcing the CSA's commitment to ensure that promotional activity by, or on behalf of, issuers remains balanced and not misleading. The CSA noted that although the illustrated examples specifically relate to activity identified in the venture issuer marketplace, the CSA's expectations regarding disclosure and promotional activities apply to all issuers.
CSA staff noted promotional activities by certain issuers that are either untrue or unbalanced to such an extent that they may mislead investors. In particular, these activities include disclosure and promotional campaigns that provide unbalanced or unsubstantiated material claims about the issuer’s business 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 expressed concern that such activity may artificially increase the issuer’s share price and trading volume, which undermines the integrity of the capital markets and puts investors at risk of harm from making misinformed investment decisions. The CSA Staff Notice also footnoted that CSA members will also be undertaking a separate project to analyze the impact of activist short sellers on the Canadian capital markets.
Examples of promotional activities that may be misleading include:
Disseminating presentations, marketing materials, social media posts, or other information that describe early-stage plans with unwarranted certainty, or make unsupported assertions about growth of markets or demand for a product;
Announcing an issuer name or business change to reference an emerging industry or technology without a supporting business plan or comprehensive risk disclosure;
Compensating third parties who use social media and general investing blogs to promote issuers, but do not disclose their agency, compensation or financial interest.
The CSA of course expects issuers to comply with all relevant securities laws applicable in the jurisdiction and follow guidance contained in other policy statements like National Policy 51-201 - Disclosure Standards, CSA Multilateral Staff Notice 51-336 - Issuers Using Mass Advertising, and CSA Staff Notice 51-348 - Staff’s Review of Social Media Used by Reporting Issuers.
The CSA Staff Notice warns that problematic promotional activities may result in enforcement action or other regulatory responses such as requiring an issuer 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.
The CSA will continue to monitor promotional activity and will consider whether the scope and extent of problematic promotional activities require compliance or enforcement regulatory action to protect investors and the integrity of our capital markets.
A copy of the full CSA Staff Notice can be found here.
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