In case you missed it, the Canadian Securities Administrators (CSA) and the Investment Industry Regulatory Organization of Canada (IIROC) published a joint statement on February 1, 2021 around the time when trading in GameStop Corp., AMC Entertainment Holdings Inc., BlackBerry Ltd. and other out-of-favour stocks were hot topics. The CSA and IIROC stated that they were closely monitoring how extreme price movements of certain stocks were contributing to volatility in Canada’s capital markets.
Just prior to the CSA-IIROC joint statement, the U.S. Securities and Exchange Commission (SEC) published an investor alert on January 30, 2021 warning investors of the significant risks of short-term investing in individual stocks based on social media, especially in volatile markets and provided tips for long-term investing. Shortly after, the SEC suspended trading on February 11 of one of those stocks, SpectraScience Inc., and on February 26 the SEC suspended trading in 15 more companies because of questionable trading and social media activity. At that time, the SEC stated that is was proactively monitoring for suspicious activity tied to stock promotions on social media and reminded investors to exercise caution before investing in companies promoted on social media.
All registrants should ensure that they have policies and procedures in place relating to the social media activity of their employees, in part to ensure that securities regulations are being followed and that social media posts are not used inappropriately. The use of social media by registrants was discussed in AUM Law’s Social Media FAQ. Other guidance on the use of social media can be found in CSA Staff Notice 33-321 Cyber Security and Social Media and CSA Staff Notice 31-325 Marketing Practices of Portfolio Managers.
Issuers should also be aware of Proposed BC Instrument 51-519 Promotional Activity Disclosure Requirements reported in our May 2021 AUM Law Bulletin that would provide investors with improved transparency about the source and reliability of promotional activity. This is a continuation of the trend of increasing regulatory scrutiny on all types of social media activity including promotional activity by issuers. See also CSA Staff Notice 51-348 Staff’s Review of Social Media Used by Reporting Issuers.