The SEC staff has posted another new CDI regarding internet communications, this one advising how issuers may conduct intrastate offerings under Rule 147 and still use the internet to communicate offers. The question is whether an issuer can use its website or social media to offer securities without tainting the intrastate nature of the offering. The staff’s response is that, although companies usually use their websites and social media “to advertise their market presence in a broad and open manner so that information is widely disseminated to any member of the general public,” companies “could implement technological measures to limit communications that are offers only to those persons whose IP address originates from a particular state or territory and prevent any offers to be made to persons whose IP address originates in other states or territories. Offers should include disclaimers and restrictive legends making it clear that the offering is limited to residents of the relevant state under applicable law. Issuers must comply with all other conditions of Rule 147, including that sales may only be made to residents of the same state as the issuer.” Determining whether a communication is an offer is often difficult and depends on the facts and circumstances in each case. However, the staff advises that using an “established Internet presence to convey information about specific investment opportunities would likely involve offers” that could be made to residents outside the issuer’s state unless the issuer took the steps above to limit communications.
Of course, disclaimers and restrictive legends are easy to apply, but how hard is it to implement this type of technological barrier? Tech gurus advise me that it would be very challenging to implement the suggested technological measures primarily because the IP address of a reader accessing a website does not indicate to the owner of the website accessed the state or jurisdiction where the reader resides or is located. As a result, they say, it would be very difficult to establish a reliable system that prevents IP addresses outside of a particular state from accessing offers on a website. Presumably, issuers unable to implement these technological measures could still employ the methods described in the immediately preceding CDI, which include “limiting access to information about specific investment opportunities to persons who confirm they are residents of the relevant state (for example, by providing a representation as to residence or in-state residence information, such as a zip code or residence address).”