There is a great deal of angst in the securities law community about the limitations surrounding social media. Obviously the fact that general solicitation can be used at all is, as Vice President Joe Biden would say, a big f***ing deal. This means that companies can use newspaper or Internet advertisements to promote their private stock offering under certain circumstances.
However, there has been little clear guidance about what happens once a company publishes something on Twitter or Facebook, since that marketing message is no longer controlled once people can retweet or share. The lawyer concern is that the company no longer has the ability to control 1) the timing of distribution and 2) the message itself, since social media posts can be altered or commented upon by others. On April 21, the SEC gave some guidance on this issue. Nerd alert! (Don’t worry, I’ll translate to English below).
Question: Some electronic communication platforms, such as those made available through certain social media websites, permit users to re-transmit a posting or message they receive from another party. When an issuer distributes an electronic communication in compliance with Rule 134 or Rule 433, must the issuer ensure compliance with Rule 134 or Rule 433 of a re-transmission of that communication by a third party that is not an offering participant?
Answer: 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 upon 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.” [April 21, 2014]
Question: Can a company get in trouble when it posts on social media and people start retweeting and doing crazy stuff?
Answer: No – you are fine so long as the person doing the retweeting/sharing is truly not affiliated with your company in any way.
This SEC interpretation is very important – and the result is obvious to most observers. However, securities attorneys are rightfully cautious. Getting securities advice wrong can have devastating results for a company.
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