Disclosure required in Investor Relations Communication: A Key Decision of the BCSC

On January 30, 2023, the BC Securities Commission (the BCSC) released a decision that a firm engaged in investor relations (IR) activities, a public company, and the principal of the IR firm had all breached Section 52 of the BC Securities Act (the “Act”) by failing to ensure that the promotional records issued as part of those IR activities, disclosed clearly and conspicuously that they were issued on behalf of the issuer. Four other issuers in the same proceedings had already settled with the BCSC.

This decision has significant implications as this was the first time the BCSC had considered and interpreted section 52. The BCSC found that the records issued by the IR firm, such as advertisements or publications on newswires and websites, and posts on social media platforms, were in the style of objective reports, were singularly positive and touted some aspect of the issuers’ businesses. The BCSC found that the dissemination by the IR firm of these records promoted or reasonably could have been expected to promote the purchase or sale of the securities of the issuers and were therefore ‘IR activities’.

The BCSC made clear that an IR firm engaged in IR activities on behalf of an issuer must clearly disclose in all its promotional materials, posts and other records, that they were prepared and disseminated ‘on behalf of an issuer’. The issuer itself is responsible for ensuring that this disclosure is made. If a fee was paid for the IR activities, the disclosure must state who paid the fee, on whose behalf it was paid, and to who. Absent this disclosure, the decision stated that investors were deprived of sufficient information to help them assess the objectivity of the information received.

The disclosure must be “clear and conspicuous” and designed to catch the reader’s attention. It must be in plain language with a prominent font and displayed near the beginning of the record or at least before substantive content. Saying that an issuer is the source of information is not the same as saying the record is issued on that issuer’s behalf. Some records disseminated by the IR firm in this case contained legal disclaimers in small print at the end of the record. Even if those disclaimers had disclosed on whose behalf the record was issued and that payment had been paid, the disclaimers would not have been sufficient for clear and conspicuous disclosure. Without being proscriptive, the BCSC stated 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 found that paying for dissemination of content disguised as independent analysis, news or unbiased opinion is misleading and that in order to ensure the integrity and fairness of the capital markets, the public must be informed when editorials and social media posts are nothing more than paid advertisements, otherwise investors are at risk of making misinformed decisions.

If you may have additional questions, please contact Claudia Losie from our Securities Practice Group.