The Securities and Exchange Commission recently issued two interpretations that address the use of social media, such as Twitter, in the context of securities law. In particular, the new guidance (1) permits companies to use hyperlinks to satisfy the legend requirements of certain rules, and (2) limits companies’ responsibility in the case of re-transmissions of electronic communications. This guidance follows other recent SEC guidance allowing greater use of social media in certain circumstances to comply with Regulation FD for communications of material nonpublic information.
SEC rules require that certain written communications be accompanied by a legend. For example, some rules require a disclaimer or warning to investors regarding the written communications or direct investors to additional written materials such as a prospectus, registration statement or tender offer information. These legends can be lengthy and detailed (usually a long paragraph). Many electronic platforms have technological limitations on the number of characters or amount of text that may be included in the communications (tweets, for example, cannot exceed 140 characters), thus making the inclusion of complete versions of such lengthy legends impossible. Recognizing a growing interest in using social media platforms such as Twitter, the SEC has now opened up the possibility for companies to tweet regarding important communications through hyperlinks without worrying about potential liabilities resulting from retweets by others.
ALLOWING USE OF HYPERLINKS TO THE REQUIRED LEGENDS
The first new SEC interpretation applies in designated contexts in which SEC rules require legends to be included in written communications, including proxy contests, business combination communications, tender offers and certain security offerings communications. However, the use of a hyperlink satisfies the legend requirement only if the following conditions are met:
- 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 communications (so, for example, Twitter qualifies, but Facebook does not because it has no limit on the length of posts);
- 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.
The third condition would still seem to use up a lot of characters. Nonetheless, according to the SEC guidance, if a company fails to meet all of these conditions, then using a hyperlink to a required legend “would be inappropriate.”
LIMITING COMPANIES’ RESPONSIBILITY FOR RE-TRANSMISSION OF COMMUNICATIONS
The SEC also recognized that any retweet of the initial written communication may alter or delete the hyperlink to the required legend. The second interpretation indicates that if a company or other offering participant was not involved in the preparation of, or endorsed or approved the information re-transmitted by a third party, such information is not attributable to the company or offering participant. For example, in the case of Twitter, companies would not generally be responsible when a retweet of the initial communication alters or omits characters from the hyperlink to the legend, thus rendering it ineffective.
However, this interpretation only applies when an electronic communication is initially distributed under certain Securities Act rules, namely, Rule 134 relating to communications not deemed a prospectus and Rule 433 that deals with free writing prospectuses. It does not extend to proxy contests, business combination communications or tender offers and thus has a narrower scope than the first interpretation described above.