Blakes Lawyers – Canada –
1 Delay social media communications Supplemental communications channels (i.e., social media) cannot be used until the information has been “generally disclosed” using traditional means.
For disseminated information to qualify as generally disclosed, public investors must have been given a reasonable amount of time to analyze the information. This requirement is intended to ensure that the market price of an issuer’s securities has a sufficient opportunity to reflect the information disclosed by traditional means prior to a supplemental method of communication that might not have as broad an audience being employed to repeat the information and thereby potentially favouring certain investors. The length of the delay will depend on a number of factors including the nature and complexity of the information and the nature of the market for the company’s securities.
2 Include all material information disclosed Providing incomplete information or omitting a material fact risks a social media communication being misleading. Accordingly, disclosures made by traditional means should be included in their entirety when communicated using social media.
However, if this is impractical for a particular disclosure or social medium (for example, due to character limits), a link to the full disclosure should be included as part of the social media disclosure and care must be taken to ensure that a communicated excerpt is not misleading when read on its own. For example, it could be misleading to use social media to highlight positive disclosure from a news release, such as current quarter earnings guidance being met without also noting material negative developments from the same news release, such as the lowering of previously issued earnings guidance regarding future periods.
3 Present information in a consistent manner Investor relations information that is disclosed through social media should be presented in the same manner as it is through traditional means. Important information should be displayed with the same prominence and a single offline communication should not be divided into a series of shorter communications if the result obscures or buries unfavourable information or alters the import of the information. If a disclosure is divided, a link to the full disclosure should be provided.
4 Treat favourable and unfavourable information consistently Issuers should be consistent in their approach to social media communications. For example, if company practice is to supplement earnings pre-release news release announcements with social media communications, the practice should be followed even when the earnings are disappointing.
5 Do not be overly promotional Investor relations information that is disclosed through social media should be viewed as an extension of an issuer’s formal corporate disclosure record and not merely as a promotional tool. For example, social media should not be used for the specific purpose of promoting trading or interest in an issuer’s securities (for example, by prominently featuring the issuer’s stock trading symbol). 6 Keep a record of social media disclosures It is important for issuers to have a record of social media disclosures to ensure that any updates or corrections can be identified and made when necessary. The social media disclosure record should also be regularly reviewed to determine whether any unintentional selective disclosure has occurred.
7 Do not use social media as an alternative to prescribed filing and disclosure requirements Where securities laws or stock exchange policies provide for a particular method of disclosure, social media communications are not a permitted alternative. Similar to NP 51-201, the TSX Guidelines provide that, despite the modern developments in the way members of the investing community communicate, traditional methods are still required for purposes of disclosing “material information” 15
15
Pursuant to Section 407 of the TSX Company Manual, “Material information is any information relating to the business and affairs of a company that results in or would reasonably be expected to result in a significant change in the market price or value of any of the company’s listed securities. Material information consists of both material facts and material changes relating to the business and affairs of a listed company.”
in compliance with TSX requirements.
16 Further, Canadian legal requirements provide that upon certain occurrences, such as a material change, issuers must issue and file a news release.
8 Consider requirements applicable to specific statements within social media communications Issuers should ensure that the content of social media communications complies with any applicable requirements relating to specific types of statements, such as:
(1) non-GAAP financial measures (for example, including prescribed and cautionary language and ensuring that non-GAAP financial measures are not being disclosed on an overly prominent basis relative to measures from the issuer’s financial statements); (2) forward-looking information (for example, including prescribed and cautionary language or, if such a practice enables a reader to readily inform himself or herself of such matters, incorporating by reference the required disclosure regarding the material risk factors and assumptions); (3) mineral project disclosures (for example, identifying the “qualified person” who reviewed the disclosure and cross-referencing any applicable technical report); and (4) oil and gas disclosures (for example, including certain proximate prescribed and cautionary language or, in some cases, a reference to the title and date of a previously filed document containing such disclosure).
9 Avoid “gun-jumping” or other prohibited disclosures during a prospectus offering As regulators do not want issuers conditioning the market for pending securities sales, the only written information that can be disseminated to potential investors during the “waiting period”17 is the preliminary prospectus, a “prospectus notice,”18 “standard term sheets,”19 “marketing materials” 20 and ordinary course, factual disclosures concerning an issuer’s products and services.
During the waiting period, issuers themselves are not permitted to distribute standard term sheets and marketing materials (only investment dealers are permitted to do so) and issuers should not use social media to distribute a preliminary prospectus or prospectus notice. However, careful use of social media to distribute ordinary course, factual press releases concerning an issuer’s products and services can be continued throughout the waiting period provided such disclosures have historically been routinely made by the issuer.
10 Avoid soliciting proxies before a management proxy circular has been filed Canadian corporate and securities laws generally prohibit management of an issuer from soliciting proxies for a shareholder meeting unless a management proxy circular has been filed with securities regulators.21 If an issuer has not yet filed its circular, the issuer must refrain from making statements on social media that could objectively be regarded as being likely to result in the giving, withholding or revocation of a proxy. This concern is particularly acute if a dissident shareholder has launched a campaign targeting the issuer and is making inflammatory public statements soliciting proxies in accordance with applicable law before the issuer has filed its own proxy circular.
In a rush to counter the dissident’s statements, the issuer or its employees may inadvertently breach soliciting prohibitions.
16 For example: “Disclosure of information by an issuer through its web site or e-mail will not satisfy the issuer’s disclosure obligations. The corporation must continue to use traditional means of dissemination. . . . Electronic communications do not reach all investors. . . . An issuer must not post a material news release on a web site or distribute it by e-mail or otherwise on the Internet before it has been disseminated on a news wire service in accordance with TSX Timely Disclosure Policy.” 17 Pursuant to Section 65(1) of the OSA, the “waiting period” is the period between issuance of a regulatory receipt for a preliminary prospectus and issuance of a regulatory receipt for a final prospectus in respect of an offering of securities.
18 Pursuant to Section 65(2)(a) of the OSA, a “prospectus notice” is a notice, circular, advertisement or letter distributed to, or any other communication with, any person or company identifying the security proposed to be issued, stating the price thereof, if then determined, the name and address of a person or company from whom purchases of the security may be made and containing such further information as may be permitted or required by the regulations, if every such notice, circular, advertisement, letter or other communication states the name and address of a person or company from whom a preliminary prospectus may be obtained.
19 Pursuant to Section 1.1 of the National Instrument 41-101 General Prospectus Requirements (NI 41-101), “standard term sheet” means a written communication intended for potential investors regarding a distribution of securities under a prospectus which is comprised of disclosure that fits into specified limited categories of permitted information, but does not include a prospectus notice. 20 Pursuant to Section 1.1 of the NI 41-101, “marketing material” means a written communication intended for potential investors regarding a distribution of securities under a prospectus that contains material facts relating to an issuer, securities or an offering but does not include a prospectus or any amendment, a standard term sheet and a prospectus notice. 21 For example, see Section 150 of the Canada Business Corporations Act and Section 9.1 of National Instrument 51-102 Continuous Disclosure Obligations.
© 2015 Blake, Cassels & Graydon LLP
Mitigating Risks
To mitigate the securities law risks presented by the use of social media, issuers should:
• Adopt a general Disclosure Policy 22 that, among other things: – informs employees of disclosure-related requirements under Canadian securities laws – establishes policies for disclosure of material information – appoints limited company spokespeople and prohibits speaking on behalf of the company without authorization
• Adopt a Social Media Policy that, among other things: – explains the issuer’s approach to social media – reminds employees that professional and personal use may affect the issuer – prohibits the violation of laws and company policies – warns of consequences (i.e., disciplinary action)
• Pre-approve social media channels and content parameters
• Provide notice within press releases and on the company website regarding social media channels used by issuer
• Provide unrestricted viewing access of social media channels by the Canadian public.
