On April 21, 2014, the Division of Corporate Finance of the Securities and Exchange Commission issued two new Compliance and Disclosure Interpretations (CDI) dealing with social media. The first CDI deals with how to affix required legends to tweets and other social media communications. The second CDI addresses retweeting or otherwise resending social media communications.
The securities laws require certain communications by public companies to include legends. The mere length of these legends prohibited the use of social media like Twitter, because its 140 character limit would be exceeded. Now, the SEC has approved the use of Twitter or similar social media by permitting a hyperlink to the required legend instead of including the legend itself. However, the CDI permits the use of Twitter or similar social media 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 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.
The dilemma lies in the last condition – what will be sufficient to “prominently convey” that important or required information is provided through the hyperlink. Will it be sufficient to state something like “The information in this hyperlink is important” (which is already 40 characters), or something similar? Also left unresolved is whether a company using a series of tweets can include a hyperlink to the legend or other disclaimer only in the first tweet, rather than repeating it in all of the subsequent tweets. We are aware that this technique has been used, but the SEC has not yet sanctioned it.
Despite the SEC guidance, that does not mean it is a good idea to use Twitter or other social media for securities law disclosures. After all, the anti-fraud rules still apply and it is difficult to provide disclosure that complies with the securities laws on Twitter in 140 characters, or as little as 100 characters if the hyperlink example above is used.
Of course, once an issuer tweets something it is inevitable that it will be retweeted, and that could violate state securities or other laws. The retweeter could modify the text or delete the link to the required legend. The SEC's guidance states that an issuer is not responsible for such retransmissions. Specifically, the guidance provides:
“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 communication in compliance with either Rule 134 or Rule 433, the re-transmission would not be attributable to the issuer. As explained in Securities Act Release No. 33-8591 (July 19, 2005), “[W]hether information prepared and distributed by third parties that are not offering participants is attributable to an issuer or other offering participant depends on whether the issuer or other offering participant has involved itself in the preparation of the information or explicitly or implicitly endorsed or approved the information.”
The staff at the SEC has stated that they will be monitoring the use of social media in this context. They also indicated that if a social media platform allows for enough characters to include the legend, then the full legend must be included. That is, you can't game the guidance by maxing out the character limits so as to exclude the legend.
Thus, tweeting is allowed, but tweeter beware.