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Vancouver company fined for not disclosing paid promotional social media posts
The precedent-setting case is the first enforcement of the law in B.C. in 28 years, and the first to deal with social media.
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In a first-of-its-kind case, the BC Securities Commission (BCSC) ruled that marketing company Stock Social violated the province’s securities laws by not adequately disclosing that the content it was promoting had been paid for by clients.
Previously, the BCSC found that Stock Social had broken the rules of the Securities Act by not offering “clear and conspicuous disclosure of promotion materials used in investor relations activities” in its social media posts and advertorials. The commission determined that, by hiding this from the public, readers were not able to decide how much weight to give to the content, which prevented their opportunity to make an informed investment decision.
Last week, Stock Social was fined $50,000 for not clearly marking the disclosures on behalf of five clients, which were involved in the mining, technology, and cannabidiol industries. The company’s CEO was ordered to pay an additional $25,000. The BCSC also also ordered one of those issuers, virtual reality production company ImagineAR, to pay $20,000.
The advertorials that triggered the ruling were published on newswires, websites, and social media between 2016 and 2018. They were written mostly like news articles, but did not disclose risks or any other negative factors about the companies that should be expected from objective reporting. None of the advertorials made clear that they were distributed on behalf of the businesses, and although some indicated a fee had been paid for their dissemination, they didn’t say on whose behalf. When disclaimers did appear, they weren’t placed in a prominent enough place for the reader to easily notice.
The panel noted that Stock Social and its CEO — Kyle Alexander Johnston — along with ImagineAR, “were cooperative, made admissions, and signalled early on in the enforcement process that they would be open to doing so." Even so, the panel determined that a “modest monetary sanction is necessary to give a meaningful signal to market participants on the importance of clear and conspicuous disclosure."
The BCSC settled with the other issuers who were involved in investor relations activities with Stock Social. The company itself is being dissolved.
The ruling represents a precedent-setting case. This was the first enforcement case of “clear and conspicuous” disclosure rules the commission had brought to a hearing against a B.C. stock tout (social media-focused or otherwise) since 1995, and serves as a warning to other marketing companies to make it clear when content has been paid for.
The judgment comes the same month that the BCSC gained greater powers to advance investigations of investment market misconduct and hold people accountable for their illegal acts, under a package of legislative amendments that came into force July 17.
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