Tweets Allowed in Proxy Contests and Securities Offerings: New SEC Guidance Allows Use of Hyperlinks to Satisfy Legend Requirements in Social Media Communications with Character Limits and Limits Issuers’ Responsibility for Social Media Communications Re-Transmitted by Third Parties

Sullivan & Cromwell LLP - April 25, 2014

The staff of the Securities and Exchange Commission has published a number of new Compliance and Disclosure Interpretations facilitating the use of social media in proxy contests, business combination transactions, tender offers and securities offerings. The interpretations allow the use of active hyperlinks to satisfy legend requirements in social media communications if necessary in light of the social media platform’s limitations on the number of characters or amount of text that may be included in a communication (as is the case, most notably, with Twitter).

In the securities offering context, the guidance also clarifies that messages re-transmitted on social media by a third party that is not an offering participant or acting on the issuer’s behalf would not be attributable to the issuer, and therefore the issuer would not be required to ensure compliance with securities laws of those re-transmitted messages.
The SEC staff expressly indicates that its guidance is in recognition of “the growing interest in using technologies such as social media to communicate with security holders and potential investors.”  Because the legending requirement with respect to proxy contests and tender offers can apply not only to issuers but to any soliciting party, this guidance can also be expected to enhance the use of social media as a tool for activist investors engaging in a proxy contest, consent solicitation or tender offer.

Issuers should bear in mind that the newly adopted interpretations do not change the SEC’s existing guidance issued in April 2013, stating that social media can be a Regulation FD-compliant means of broad dissemination only if the company has taken adequate steps to alert the market that it intends to disclose such information through that channel.