New SEC Guidance on Social Media: Satisfying Legending Requirements and Responsibility for Retweets | Practical Law

New SEC Guidance on Social Media: Satisfying Legending Requirements and Responsibility for Retweets | Practical Law

The SEC staff issued new compliance and disclosure interpretations (C&DIs) offering guidance on how to satisfy legending requirements through social media and on an issuer's responsibility when an unrelated third party retransmits (for example, retweets) its communications.

New SEC Guidance on Social Media: Satisfying Legending Requirements and Responsibility for Retweets

by Practical Law Corporate & Securities
Published on 22 Apr 2014 • USA (National/Federal)
The SEC staff issued new compliance and disclosure interpretations (C&DIs) offering guidance on how to satisfy legending requirements through social media and on an issuer's responsibility when an unrelated third party retransmits (for example, retweets) its communications.
On April 21, 2014, the staff of the SEC's Division of Corporation Finance issued five new C&DIs intended to clarify the staff's stance on:
  • The permissibility of using hyperlinks to satisfy legending and similar informational requirements under the Securities Act when a communication is made through an electronic platform that limits the number of characters or amount of text that can be included (for example, Twitter and some other social media platforms).
  • An issuer's responsibility for an electronic communication that is retransmitted by a third party who is not an offering participant (for example, when an issuer's tweet is retweeted).

Use of Hyperlinks to Satisfy Legending and Similar Informational Requirements

New C&DIs 110.01, 164.02 and 232.15 address the legending and other informational requirements that apply to permitted communications under Rule 134, Rule 165 and Rule 433 under the Securities Act.
Specifically, the staff states that it will not object to the use of a hyperlink to satisfy the legending and other informational requirements under those rules if:
  • The platform through which the communication is distributed has technical limitations on the number of characters or amount of text that may be included.
  • Including the required legend or other information in the communication would exceed the character or text limit.
  • The communication contains a hyperlink to the required legend or other information and prominently conveys that important or required information is provided through the hyperlink.
However, where an electronic communication through the relevant platform could include the required legend or other information while staying within the character or text limit, the use of a hyperlink to the required statements would not be appropriate.
C&DI 164.02 states that the guidance relating to communications under Rule 165 applies equally to written communications that constitute solicitations made in reliance on Rule 14a-12 under the Exchange Act and pre-commencement written communications subject to Exchange Act Rules 13e-4(c), 14d-2(b) and 14d-9(a).

Retransmission (Retweets) of Issuer Communications by Unrelated Third Parties

In new C&DIs 110.02 and 232.16, the staff observes that some electronic platforms permit users to retransmit communications made by others. The staff then poses the question whether an issuer that has distributed a communication in compliance with Rule 134 or Rule 433 must ensure continued compliance of any retransmission of its communication by a third party who is not an offering participant.
The staff's answer to this question is no. The retransmission would not be attributable to the issuer if both:
  • The third party is neither an offering participant nor acting on behalf of the issuer or an offering participant.
  • The issuer has no involvement in the retransmission beyond having initially prepared and distributed the communication in compliance with either Rule 134 or Rule 433.
The staff reiterated that, when examining the second prong, whether information prepared and distributed by a third party who is not an offering participant would be attributable to an issuer or other offering participant depends on whether the issuer or other offering participant was involved in its preparation or explicitly or implicitly endorsed or approved the information.
Regardless of this new staff guidance, issuers and other offering participants should always keep in mind that social media communications are subject to the Exchange Act Section 10(b) and Rule 10b-5 antifraud provisions. Accordingly, to ensure that its social media communications are not misleading, an issuer and its agents should always avoid selectively disclosing material information or disclosing information without providing sufficient context. For more on the intersection of social media and the US federal securities laws, see Practice Note, Social Media Compliance with Securities and Disclosure Laws.
For more on Rule 134 and offering-related publicity generally, see Practice Note, Registration Process: Publicity.
For more on Rule 433 and free writing prospectuses, see Practice Note, Free Writing Prospectuses.