For the first time in its history, a B.C. Securities Commission panel has ruled a B.C. stock promotion firm violated the province's securities regulations by not being transparent with its promotional materials.
Stock Social and its CEO Kyle Alexander Johnston admitted they repeatedly violated regulations by not adequately disclosing that it distributed online advertorials, via social media platforms, to promote the purchase or sale of securities of five B.C. companies, a commission panel said Jan. 30.
Between 2016 and 2018, Stock Social, one of numerous marketing companies in B.C. commonly called a stock tout, was paid more than half a million dollars from the five companies combined, to write articles promoting corporate activities.
However, the commission stated, “These advertorials — which were disseminated on news wires, websites and social media — were written mostly like news articles but they did not disclose risks or any other negative factors about the issuers that one would expect from objective reporting.”
The B.C. Securities Act requires such advertorials to contain certain elements of “clear and conspicuous” disclosure, which did not occur in these instances, the panel found in its administrative case.
“None of the advertorials made clear that they were distributed on behalf of the issuers, and although some indicated a fee had been paid for dissemination, they did not say on whose behalf. When disclaimers did appear, they were not placed in a prominent place for the reader to easily notice,” the commission stated in a news release.
The commission stated this is the first BCSC panel decision of a B.C. Securities Act violation “regarding clear and conspicuous disclosure” of stock promotion materials.
The regulations have been in place since 1995. The commission has previously reached two settlements on such matters, in 1997.
Sanctions for Stock Social and West Vancouver resident Johnston will be determined at a future hearing.
The panel’s ruling does not state what, if any, harm was done to investors or to what extent the advertorials may have enriched the companies' stock price.
The ruling also found a virtual reality production company called ImagineAR, violated the same part of the act when it engaged with Stock Social.
Last year, four companies and their CEOs at the relevant times admitted they failed to disclose Stock Social advertorials and social media posts were issued on their behalf.
MGX Minerals and its president and CEO Jared Michael Lazerson paid Stock Social the most money ($408,300.60 and US$40,000) for the promotions, a settlement ruling shows. MGX agreed to pay a $25,000 fine while Lazerson paid a $10,000 fine.
Other companies paid between $10,000 and $30,000 to Stock Social.
Hello Pal and its president and CEO Ryan James Johnson; Phivida Holdings Inc. and its president and CEO John-David Alexander Belfontaine; and Bearing Lithium Corp. and its president and CEO Jeremy Arthur William Poirier, all admitted to the same misconduct and paid the same fines as MGX and Lazerson, respectively.