Misleading disclosure wasn’t material, BCSC panel finds

While a Vancouver company issued a news release that may have misled investors, the misleading information wasn’t necessarily material to the company’s stock price, a regulatory tribunal found.

A hearing panel of the British Columbia Securities Commission (BCSC) dismissed enforcement allegations against PreveCeutical Medical Inc. and its CEO, Stephen Van Deventer, ruling that, although the contents of a press release was misleading, the deficient disclosure didn’t amount to a violation of securities regulations.

BCSC staff alleged that the company made a misrepresentation in a 2018 news release, which announced the company had raised approximately $6.5 million from investors in a private placement, without disclosing that almost half the money ($3.2 million) was paid to consultants.

Given that the company had historically spent only about 10% of new capital on consultants, the panel agreed that failing to disclose that almost 50% of this particular private placement went to consultants was misleading.

“To put the situation in the most simple terms possible, it was misleading for PreveCeutical to announce that it had raised $6,539,987.50 in a private placement and to supplement that announcement with language describing how PreveCeutical ‘is continuing to meet key milestones in our portfolio of research and development programs’ without also disclosing the facts about how much money had already been spent or committed to the consultants,” the panel said in its ruling. “The omission of that information made the disclosure a half-truth.”

“The decision of the respondents to resort to a half-truth in the news release by withholding that information falls far short of the standard of conduct expected of participants in the capital markets,” it said.

However, the panel also found that the BCSC failed to prove the misleading information was material to investors.

“[W]e see it as an open question whether reasonable investors would have expected a significant effect on market price,” the panel said in concluding that BCSC staff failed to prove the omission was material.

“[I]t has not been established according to the required standard of proof that reasonable investors would have changed their behaviour, or expected other investors to change their behaviour, in a manner which would have had a significant effect on the market price of PreveCeutical’s shares,” it said.

Given its conclusion that the misleading disclosure wasn’t necessarily material, the panel dismissed the allegations against both the company and its CEO.