A B.C. Securities Commission hearing panel has fined an online stock promotion company $50,000 for illegally promoting five small public companies that paid the promoter more than half a million dollars.
Stock Social and its CEO Kyle Alexander Johnston they repeatedly violated regulations of the B.C. Securities Act by not adequately disclosing that it distributed online advertorials, via social media platforms.
On July 25, a commission panel decided in its administrative proceedings that a $50,000 penalty for the company and $25,000 penalty for Johnston would be enough of a deterrence for other social media marketing companies wading into the promotion of public companies.
The commission’s executive director Peter Brady brought the case to a hearing last September, after investigating Stock Social’s activities. Brady sought repayments of over $454,000, plus US$63,500, representing the receipts Stock Social issued to the companies. Brady also sought a $60,000 penalty against the company. With respect to Johnston, Brady sought a $25,000 penalty and a two-year ban on all promotional activity for registered public companies — obtaining only the former.
The panel was more lenient with Johnston and Stock Social, who were represented by lawyer Patrick Sullivan, who argued for no sanctions at all. Sullivan noted 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.
The panel noted that at the time of the misconduct, there had been no policy or guidance from the commission on how to comply with such rules, when using social media in promotional activities.
All parties agreed Johnston and Stock Social represented a low risk of re-offending, especially with Stock Social being dissolved. Johnston deposed that the company only retained about 20-30 per cent of the funds as the rest went to other service providers, although it’s unclear who and exactly how much of the funds were related to services that broke the rules.
The commission stated, “These advertorials — which were disseminated on news wires, websites and social media — were written mostly like news articles but they did not disclose risks or any other negative factors about the issuers that one would expect from objective reporting.”
The commission stated in a Jan. 30 news release that, “None of the advertorials made clear that they were distributed on behalf of the issuers, and although some indicated a fee had been paid for dissemination, they did not say on whose behalf. When disclaimers did appear, they were not placed in a prominent place for the reader to easily notice.”
The panel’s rulings never stated what, if any, harm was done to investors or to what extent the advertorials may have enriched the companies' stock price.
In its decision, the panel also fined virtual reality production company ImagineAR $20,000 for its part in the illegal promotions.
Last year, four other companies and their CEOs at the relevant times admitted they failed to disclose Stock Social advertorials and social media posts were issued on their behalf.
MGX Minerals and its president and CEO Jared Michael Lazerson paid Stock Social the most money ($408,300.60 and US$40,000) for the promotions, a settlement ruling shows. MGX agreed to pay a $25,000 fine while Lazerson paid a $10,000 fine.
Other companies paid between $10,000 and $30,000 to Stock Social.
Hello Pal and its president and CEO Ryan James Johnson; Phivida Holdings Inc. and its president and CEO John-David Alexander Belfontaine; and Bearing Lithium Corp. and its president and CEO Jeremy Arthur William Poirier, all admitted to the same misconduct and paid the same fines as MGX and Lazerson, respectively.