Securities regulators today warned that issuers may be violating securities rules and misleading investors by excessively hyping their achievements or prospects in their public disclosure.
In a notice published Thursday, the Canadian Securities Administrators (CSA) reports that it is seeing promotional activities by issuers that are “either untrue or unbalanced to such an extent that they may mislead investors.”
The CSA is particularly concerned about companies making unsubstantiated claims about their business and their profit prospects with an eye to boosting their stock price.
“We are concerned that such activity may artificially increase the issuer’s share price and trading volume, which undermines the integrity of the capital markets and puts investors at risk of harm from making misinformed investment decisions,” the regulatory group states in its notice, which spells out some of the issues that regulators have observed.
For example, the CSA points to companies that tout their plans to enter hot sectors, such as the emerging cannabis industry or the cryptocurrency space, without any concrete plans for that business or proper risk disclosure. It also cites companies trumpeting acquisitions or other major positive events that ultimately fail; companies that make presentations or tout early-stage plans with unwarranted certainty; and firms that pay for promotion through social media or other online channels, without disclosing the underlying financial arrangements.
The CSA stresses that issuers are expected to comply with provisions in securities rules that are designed to guard against companies making excessively promotional claims and statements that are intended to drive stock prices. Issuers must follow the requirements regarding the disclosure of forward-looking information, the CSA stated.
“We will continue to monitor promotional activity and we will consider whether the scope and extent of problematic promotional activities require compliance or enforcement regulatory action to protect investors and the integrity of our capital markets,” the CSA states in the notice. It adds that regulators will be “undertaking a separate project to analyze the impact of activist short sellers on the Canadian capital markets.”
Said Louis Morisset, chairman of the CSA and president and CEO of the Autorité des marchés financiers. “Misleading promotional activity by issuers undermines the integrity of our capital markets and puts investors at risk of harm. We are publishing this notice to remind issuers of our expectations in this area.”