#SECGuidance — Using Social Media in Registered Securities Offerings
Recognizing “the growing interest in using technologies such as social media to communicate,” on April 21, 2014, the SEC Staff released updated guidance to facilitate the use of social media for certain communications in registered securities offerings. This guidance permits offering participants to use Twitter or other similar social media with character limitations to issue Rule 134 offering announcements and Rule 433 free writing prospectuses with respect to registered securities offerings. (Questions 110.01 and 110.02 / 232.15 and 232.16)
The federal securities laws generally restrict communications in connection with registered securities offerings. Offering participants who do not comply with these restrictions risk violating gun-jumping prohibitions or Section 5 of the Securities Act, which could delay the offering or lead to significant liability. The federal securities laws do recognize, however, that a number of communications made by offering participants in connection with registered securities offerings are necessary to properly functioning capital markets. Balancing the potential serious consequences of federal securities law violations with the need for such communications, the SEC permits offering participants to make certain communications in connection with a registered securities offering under Rules 134 and 433, subject to a number of requirements, such as including accompanying legends.
Prior to the new SEC Staff guidance, the legend requirements effectively precluded an offering participant from using Rule 134 to announce an offering or issuing a pricing term sheet via Twitter or similar social media platforms with character limitations because the required legend would cause the communication to exceed character limitations.
Under the new SEC Staff guidance, offering participants are permitted to electronically communicate Rule 134 announcements and Rule 433 free writing prospectuses if:
- the electronic communication is distributed through a platform that has technological limitations on the number of characters or amount of text that may be included in the communication (e.g., Twitter);
- including the required statements in their entirety, together with the other information, would cause the communication to exceed the limit on the number of characters or amount of text; and
- the communication contains an active hyperlink to the required statements and prominently conveys, through introductory language or otherwise, that important or required information is provided through the hyperlink.
Although the SEC Staff did not provide example language that meets the “prominently conveys” standard, introductory language or hyperlinks titled “Important Information,” “Required Information” or “SEC Legend” should meet the new standard.
It is important to note that the use of an active hyperlink to the required legend is only available for electronic communications on platforms where the inclusion of the required legend exceeds the limit on “the number of characters or amount of text that may be included in the communication.” Accordingly, for communications using platforms without restrictive character limitations, such as Facebook or LinkedIn, the SEC Staff has indicated that “the use of a hyperlink to the required legend would be inappropriate.”
The SEC Staff guidance also addressed re-transmission of issuer Rule 134 or Rule 433 communications by a third party. In such instance, if the third party is neither an offering participant nor acting on behalf of the issuer or an offering participant and the issuer has no involvement in the third party’s re-transmission beyond having initially prepared and distributed the electronic communication in compliance with either Rule 134 or Rule 433, the re-transmission would not be attributable to the issuer.
The new guidance should assist issuers who desire to use social media as a communication channel with investors, but issuers must still ensure that their use of social media complies with other federal securities laws, including Regulation FD. This means that prior to using social media for electronic communications related to a registered securities offering, an issuer must have taken measures to alert investors, the market and the media of the channels of distribution it expects to use, so that these parties know where to look for disclosures of material information about the issuer or what they need to do to receive this information.
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