The SEC’s incremental accommodation of social media continues. Most recently, the staff has issued several CDIs specific to public offering communications, including tombstone ads (Rule 134), business combinations (Rule 165) and free writing prospectuses (Rule 433(c)). While this may be gripping stuff for the relatively few companies that like to communicate offering-related information via Twitter or Facebook, for most companies it is more relevant as another indicator of SEC progress in the broader context of social media disclosure.
What do the CDIs say?
At the risk of gross oversimplification, the five new CDIs basically say that when a company is required by Rules 134, 165 or 433(c) to affix a legend or statement to a public communication that it chooses to communicate via social media, it may satisfy that requirement by hyperlinking to the legend or statement, but only if the following conditions are met:
The electronic communication is being distributed through a platform with technological limitations on the number of characters or amount of text that may be included in the communication;
Including the required legend or statement, 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 a hyperlink to the required legend or statement and “prominently conveys, through introductory language or otherwise, that important or required information is provided through the hyperlink.”
While that last bullet introduces an unhelpful element of uncertainty and logistical inconvenience that somewhat undercuts the staff’s goal, this is generally a step in the right direction.
Another CDI makes it clear that the company is not liable for the content of certain posts or tweets that are re-transmitted by a third party:
“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.”
Why are these CDIs noteworthy?
Apart from the still relatively few (though perhaps rapidly increasing) companies that want to use social media in connection with a capital raise, this is most noteworthy for the fact that social media disclosure is transitioning from exotic to mainstream. As recently as last November (see this Doug’s Note), I said that
“While it is logical to believe that a good hyperlink cures a potential antifraud violation, the reality will remain uncertain until the staff provides guidance, preferably sooner rather than later.”
Well, that guidance is now starting to arrive, and there is every reason to think there will be more to come. Not only are companies becoming comfortable with social media as a regular method of communication, now the SEC staff is as well.
Companies who had not already done so should assess their appetite for, and ability to execute, an effective social media strategy in all aspects of public communications (see this Doug’s Note). Companies that fail to do so may soon find that they are falling behind their peers in that rapidly developing area.