background
On January 30, 2023, the British Columbia Securities Commission (BCSB) issued its decision1 on the liability portion of the hearing against Stock Social Inc. and its President, CEO and sole director, Kyle Alexander Johnston, and Imagine AR Inc.2
This decision is significant because, for the first time, it provides guidance on what constitutes “clear and conspicuous” disclosure and what information is sufficient to satisfy the disclosure requirement that disclosure is made on behalf of an issuer.3
In the Stock Social Decision, the BCSC discusses the interpretation of Section 52(2) of the British Columbia Securities Act4 (the Act), which states that “a person engaged in investor relations activities and an issuer or security holder in whose on behalf of an investor relations activities are conducted, must ensure that any record disseminated in connection with investor relations activities by the person involved in those activities clearly states that the record is made by or on behalf of of the issuer or security holder.” [Emphasis added].
Results What “on behalf of” means
Stock Social conducted investor relations (IR) activities in which they circulated records on behalf of multiple issuers, including advertorials and dozens of social media posts.5 None of the records disclosed that the records were on behalf of issuers.6 BCSC found notes that Stock Social meets the requirements of p.52(2).7
Although some records contained some type of disclosure, it was not the proper type. Records stating that there were no guarantees of accuracy, the information was not investment advice, or that a fee was paid for its dissemination do not inform a reader of this that an advertorial has been issued on behalf of a specific issuer.8
Even if a record states that it was paid for by an issuer, that was not sufficient to satisfy the requirement to disclose that the record was made on behalf of the issuer.9 In addition, the BCSC found that even if an issuer as the source of the information disseminated, again, was not sufficient to meet the requirements of Section 11(52)(2).10 Ultimately, the BCSC found that Stock Social did indicate that an issuer was the source of the information disseminated , but this is not the same when Stock Social states that the advertorial was issued on behalf of an issuer. In both examples, disclosure just wasn’t enough.11
Which means “clear and conspicuous”.
Going forward, records issued on behalf of an issuer must disclose in plain language, in a prominent place and in conspicuous type (to attract the reader’s attention) that they have been distributed on behalf of the issuer. Examples of plain text are: “Distributed on behalf of [Issuer name]’ or ‘Paid advertising on behalf of [Issuer name].”12
A prominent dot means “it should appear at or very near the beginning of a [dissemination] or at least close to the essential part of the [dissemination].”13 Finally, disclosure should not be cloaked in legal language or standard forms that the public might potentially skip.14 They should not be included in links or disclaimers and legal notices.15 In other words, it would not suffice to include a disclaimer put the end to the requirements.
The responsibility to comply with S. 52(2) applies to issuers of investor relations firms and employees, officers, directors or agents of the firms found guilty of a violation of S. 52(2).16 In particular, it has been found that Johnston personally for Stock Social’s violation of p.52(2).17
Findings When conducting investor relations activities, companies must indicate in plain language on whose behalf they are disseminating the information. This cannot be replaced by stating that the issuer is paying for the distribution or that the issuer is the source of the information. The information must be prominently displayed on the distribution in conspicuous writing. Examples include placing “Distributed on behalf of [Issuer name]’ or ‘Paid advertising on behalf of [Issuer name]’ at or near the start of dissemination or somewhere near the key information. It should not be hidden in links, disclaimers, legal notices or placed at the end of the distribution.
Any breach would place both the investor relations firm and the issuer in violation of the Securities Act.
If you have any questions about any of the above or need help navigating the regulatory requirements related to advertising or IR activities, please do not hesitate to contact a member of our team.
1 Re Stock Social Inc., 2023 BCSECCOM 52 [Re Stock Social]
2 On October 4, 2022, we published an article regarding a series of settlement agreements reached on this matter.
3 footnote 1 above at para. 49.
4 [RSBC 1996] Chapter 418
5 footnote 1 above at paragraphs 57 and 59.
9 Ibid., para. 61.
10 Ibid., para. 62.
16 See p. 168.2 of the Act.
17 footnote 1 above at paras. 75-76.
