Recognizing the growing interest in using technologies such as social media to communicate with security holders and potential investors, the Securities and Exchange Commission released a new Compliance and Disclosure Interpretation addressing the use of hyperlinks in Tweets and other social media communications to satisfy the SEC's legending requirements. Historically, the securities laws have required certain communications by public companies to include legends. Given the length of these legends, the result has been a de facto restriction on an issuer's ability to communicate electronically using Twitter or other social media services that restrict the number of characters that can be used in such communications. Following the release of the SEC's new guidance, companies will now be able to include in their Tweets or other social media communications an active hyperlink to the required legend instead of including the entire legend in the following limited circumstances:
- 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;
- 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.
While the SEC does not provide specific examples of language to use to satisfy the last of the above requirements, hyperlinks drafted as "IMPORTANT" (nine characters), "MUSTREAD" (eight characters) or "VITAL" (five characters) may prove to satisfy the proposed standard. For those social medial sites that do not restrict the number of characters that may be used, such as Facebook, issuers must continue to include the full legend in the body of their communications and cannot rely on the use of an active hyperlink to satisfy the SEC's legending requirements.
The SEC's new guidance will free up public issuers to communicate with their investors using Twitter and other similar character-limited social media services, which for a number of today's technology companies is a key communication channel. Additionally, the result of this new guidance will not only benefit the communication strategies of corporate issuers, but activist stockholders can also now use social media sites such as Twitter to launch proxy fights and make attacks against an issuer's board of directors without having to first file and mail a proxy statement. With this new guidance the SEC has taken another step towards bringing its rules in line with contemporary business practice, but companies and proxy participants would be wise to closely coordinate their media strategies with legal counsel to ensure their communications comply will applicable securities laws, such as antifraud rules, Regulation FD and the requirement to timely make supportive filings with the SEC in certain circumstances.