In September 2011, the staff (the Staff) of the securities regulatory authorities of Alberta, Ontario, Québec, Nova Scotia, New Brunswick and the Northwest Territories (the Jurisdictions) published CSA Multilateral Staff Notice 51-336 Issuers Using Mass Advertising (the Notice), which sets out the Staff’s views with respect to the use of general advertising (including advertising through television, social media, radio, Internet and print) in an apparent effort to promote interest in an issuer’s securities. The observed advertisements appear not to be ordinary course business advertising or promotion aimed at, for instance, selling products or services of the issuer or simply raising brand awareness of the issuer, and the Notice states that it is not directed towards advertising or publicity campaigns that are legitimately aimed at such purposes.1
Ads promoting issuer securities
The Staff has observed television advertisements, primarily involving junior issuers, that focus mainly on positive aspects of the issuer’s business or its prospects. In the case of an issuer listed on a stock exchange, the issuer’s stock symbol figures prominently in the ad. In the case of an unlisted issuer, contact information is generally provided for investment inquiries. The regulators’ view is that these advertisements appear to be for the specific purpose of promoting the issuer’s securities.
In the Notice, the Staff reminds issuers and market participants that advertisements intended to promote the distribution of securities may fail to comply with disclosure requirements under the securities legislation in the Jurisdictions and/or may be misleading to investors. In addition to the compliance and investor protection issues raised by the advertisements, the Staff notes that advertising apparently intended to promote trading in an issuer’s securities does not reflect positively on issuers or the Canadian capital markets. The Notice reminds market participants that advertising or marketing activities undertaken during a period of distribution of securities or in furtherance of a distribution are subject to restrictions in the Jurisdictions. Restricted advertising or marketing activities may be oral, written or electronic and include television advertisements.
Additional requirements applicable to mining and oil and gas disclosure
The Notice also focuses particular attention on advertisements that contain scientific and technical disclosure regarding mineral or oil and gas projects. Disclosures by an issuer related to mineral projects must comply with the specific requirements of National Instrument 43-101 Standards of Disclosure for Mineral Projects (NI 43-101), which includes the requirement that all disclosure of scientific or technical information by an issuer (including disclosure of mineral resources or mineral reserves) concerning a mineral project on a property material to the issuer must be based on information prepared by or under the supervision of a qualified person or approved by a qualified person. Similarly, the specific disclosure requirements under National Instrument 51-101 Standards of Disclosure for Oil and Gas Activities apply to disclosure of reserves and other information made by an issuer engaged in oil and gas activities.
The Staff advises that they will continue to monitor advertising by issuers. The Notice is in a sense a cautionary reminder regarding existing laws and regulations. Issuers, dealers, underwriters and other market participants, whether in respect of private placements or public offerings, are reminded that, under the securities legislation of the Jurisdictions, advertising or marketing activities undertaken during a period of distribution of securities or in furtherance of a distribution are subject to restrictions, including the applicable prospectus requirements (or compliance with the conditions for an available exemption). Solicitation and advertising activities (which may be electronic, written or oral) are subject to restrictions, and all such activities should be discussed and analyzed among the issuer, dealers and counsel in advance.
The Notice states that if an issuer’s advertisement breaches securities laws or regulations, or appears to be misleading to investors or contrary to the public interest, the issuer should anticipate that Staff will take appropriate regulatory action, which may include a review of the issuer’s overall disclosure or issuances of securities, and which may result in delays, “cooling-off” periods or other consequences on a distribution.
In addition, we note that market participants should be aware that such activities may also have a negative impact on distribution efforts outside the Jurisdictions, including placements into the United States, where restrictions on general solicitation, general advertising, and other methods used for the purpose of conditioning a market for a distribution, apply.