Solicitations using Social Media
During a webcast earlier this year, our partner Jim Moloney, who formerly worked in the SEC’s Office of Mergers & Acquisitions (“OM&A”), spoke with the current Chief of OM&A, Michele Anderson. On that webcast, Ms. Anderson acknowledged that “social media is here to stay,” noting that the Commission was “trying to find a way to make it work.” Following the webcast, the SEC’s Division of Corporation Finance (“Corp Fin”) posted a new round of Securities Act Compliance and Disclosure Interpretations (“C&DIs”) that approved hyperlinking to legends or required statements in satisfaction of the requirements of Rules 134, 165 and 433 in certain situations. Under three new interpretations, Corp Fin clarified that an electronic communication containing a hyperlink to a legend (or a required statement in the Rule 134 context) would be acceptable so long as:
(1) the electronic communication is spread using a platform that limits the number of characters allowed in the communication (such as Twitter);
(2) including the entire legend (or required statement in the Rule 134 context) would result in a communication that exceeds the platform’s character limit (such as Twitter’s 140 character limit); and
(3) the electronic communication contains a working hyperlink to the legend (or required statement in the Rule 134 context) along with language explaining that important or required information resides at the other end of the hyperlink.
(Question 110.01; Question 164.02; Question 232.15) The new guidance also makes clear that an issuer hyperlinking in satisfaction of the requirements under Rules 134 and 433 would not be liable for any re-transmission by a third party of the original electronic communication containing the hyperlink, so long as the third party is not participating in the offering or acting on the issuer’s behalf. (Question 110.02; Question 232.16) The new guidance, however, does not address uses of social media in other contexts such as earnings calls, leaving the full scope of permissible uses uncertain for now.
The Intrastate Offering Exemption
In addition, Corp Fin issued three new C&DIs under the intrastate offering exemption set forth in Section 3(a)(11) of the Securities Act and Rule 147 thereunder.
First, Corp Fin noted that, while Rule 147 does not prohibit the use of general solicitation in an intrastate offering, any such general solicitation must be conducted in a way that ensures that offers are made only to persons resident within the state or territory of which the issuer is a resident. (Question 141.03)
Consistent with this theme, Corp Fin noted that the use of a third-party Internet portal to promote an intrastate crowdfunding offering would not be inconsistent with a claim of exemption under Rule 147 so long as the portal implements measures to ensure that any offers of securities are made only to persons resident in the relevant single state or territory. Corp Fin noted that these measures should include, at a minimum, disclaimers and restrictive legends making it clear that the offering is limited to residents of the relevant state and limiting access to information about specific investment opportunities to persons who confirm they are residents of the relevant state. (Question 141.04)
Conversely, Corp Fin explained that an issuer likely could not, consistent with Rule 147, use its own website or social media presence to convey information about specific investment opportunities, as these communications would likely involve offers to residents outside the particular state in which the issuer was attempting to limit the offer. (Question 141.05)