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The Need For “Clear and Conspicuous” Disclosure of Investor Relations Activities

The British Columbia Securities Commission (“BCSC”) recently published BC Notice 51-703 (the “BC Notice”) reminding parties of the need for “clear and conspicuous” disclosure of investor relations activities under the British Columbia Securities Act.

The intent of the BCSC was to raise awareness of the first of a kind in Canada finding of the BCSC panel in Re Stock Social Inc. about promotional disclosure, and how it must be presented to comply with the law.  In that decision (see here) the BCSC panel determined that investor relations records must “clearly and conspicuously” disclose if they are disseminated by or on behalf of an issuer or security holder under Section 52(2) of the British Columbia Securities Act. This applies to promotional and marketing materials, including social media posts by “influencers” and is binding on issuers and promoters in B.C.

“Investor relations activities” is defined broadly in the British Columbia 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”.

There are limited exceptions in the definition. For example if the records cannot reasonably be considered to promote the purchase or sale of securities of the issuer, and they are disseminated in the issuer’s ordinary course of the business to promote the sale of its products or its services, or to raise public awareness of the issuer, the records may not be investor relations activities.  However, the BCSC noted that BCSC staff and the respective compliance staff of the TSX Venture Exchange and Canadian Securities Exchange commonly see market participants seek to characterize activities as “business promotion”, “marketing”, or “market awareness”, particularly but not exclusively on social media or through influencers when any reasonable observation is that such activity is directed at or at least includes the promotion of the purchase or sale of securities and is therefore “investor relations activities” under the British Columbia Securities Act.

A person engaging in investor relations activities for an issuer (as well as engaged in investor relations activities for a security holder of an issuer), and the issuer itself, must disclose their relationship. In particular, under section 52(2) of the British Columbia Securities Act, any records disseminated as part of such activities must disclose the relationship between those parties, and must do so “clearly and conspicuously”.  In the Re Stock Social Inc. decision, the BCSC explained that, to be “clear and conspicuous” as required, 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; and

  • designed to catch the attention of the reader.

While securities legislation does not prescribe specific words that must be used to comply with section 52(2), the BCSC panel note that: “the plain language could have said something like ‘Disseminated on behalf of [Issuer name]’ or ‘Paid advertisement on behalf of [Issuer name]’.”

The BCSC panel further explained 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, 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.” Similarly, it is insufficient for a record to include a hyperlink to another website that contains the disclosure required by section 52(2) since “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. A link that is merely entitled “disclaimer” or “legal notice” is likely not sufficient.

The BCSC, other members of the Canadian Securities Administrators (CSA), and the staff of each of the TSX Venture Exchange and Canadian Securities Exchange are concerned about promotional activity, including investor relations activities, that is untrue or unbalanced and that may mislead investors. That kind of activity can undermine the integrity of the capital markets and puts investors at risk of harm by making misinformed investment decisions. In 2018, the CSA issued guidance in CSA Staff Notice 51-356 Problematic Promotional Activities by Issuers (see here) to provide guidance about these concerns and staff's views on actions a person can take to avoid this problematic activity. Staff encourage those engaged in these activities to review that guidance as well as the BCSC panel’s reasoning in the Re Stock Social Inc. decision.

Endeavor Law can assist issuers with Canadian securities law investor relations and disclosure compliance and regulatory matters. Endeavor Law will always seek to provide competitive pricing for any legal services requested and is pleased to discuss fee arrangements that suit any potential client.

Does not constitute legal or other advice and must not be used as a substitute for legal advice from a qualified legal professional in your jurisdiction who has been fully informed of your specific circumstances. Information may not be up-dated subsequent to its initial publication and may therefore be out of date at the time it is read or viewed. Always consult a qualified legal professional in your jurisdiction.


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