By: Andrew Elbaz, Alexander Katznelson, and Student-at-Law, Nusrat Ali
On November 29, 2018, the Canadian Securities Administrators (CSA) published CSA Notice 51-356 Problematic promotional activities by issuers (“Notice 51-356”). The notice warns issuers to avoid promotional activities that may artificially increase an issuer’s share price and trading volume, or may mislead investors.
In the notice, the CSA provides a number of examples of common promotional activities which may be deemed misleading. Some examples are:
- distributing promotional material via social media or otherwise, that describes early stage plans which do not have any warranted certainty;
- making public statements about the growth of markets or demand for an issuer’s product without any supporting evidence;
- issuing news releases that do not disclose any new material information;
- contracting with and compensating third-party promoters who disseminate promotional information through blogs or social media without disclosing their financial interests, compensation and agency;
- announcing an issuer’s entry into an emerging industry or technology without any substantive business plan or risk disclosure; and
- announcing significant events or transactions without disclosing condition precedents, or failing to disclose substantial changes to the terms of the transactions.
In addition to the above, Notice 51-356 broadly summarizes relevant guidelines with respect to engaging in promotional activities in Canada. Notably, the CSA reiterates the general prohibition against making false and misleading statements that may significantly affect the price and value of an issuer’s securities. This prohibition also extends to an issuer’s acts, practices, and conduct. An issuer is required to make clear and conspicuous disclosures that exclude misleading statements, exaggeration, and “cherry-picking” of information.
With respect to forward-looking information, the CSA cautioned that issuers should only disclose forward-looking information when (a) issuers have reasonable basis for the disclosed information, (b) the information disclosed is continuously updated with changes in events and circumstances, and (c) the disclosure identifies risk factors that may cause the results to differ. Forward-looking information must be identified as “forward-looking” and the issuer must caution users that the information is based on a set of assumptions and that the actual results may vary.
The CSA urges issuers in Canada to familiarize themselves with specific prohibitions in their respective jurisdictions against untrue or unbalance promotional activities. According to the notice, issuers must comply with all relevant securities laws applicable in their jurisdiction, as well as the following guidelines: (1) National Policy 51-201 Disclosure Standards, (2) CSA Multilateral Staff Notice 51-336 Issuers Using Mass Advertising, and (3) CSA Staff Notice 51-348 Staff’s Review of Social Media Used by Reporting Issuers.
The CSA will continue to monitor promotional activities and will take actions as necessary against offending issuers, which may include both regulatory responses and/or enforcement actions. Among other things, an issuer may be required to issue a clarifying news release, retracting overly promotional language from promotional materials and re-filing continuous disclosure documents.
Please contact the authors, Andrew Elbaz and Alexander Katznelson, to discuss how this notice may affect your business.