SEC’s Social Media Guidance Recognizes Required Disclosures Often Exceed 140 Characters

Businesses are increasingly using social media to interact with current and potential clients. However, some industries must tread carefully to avoid running afoul of existing regulations, which often do not reflect the new technology.

Thankfully, some regulators appear to be recognizing the growing importance of social media and are revising their policies accordingly. The Securities and Exchange Commission (SEC) recently issued two Compliance and Disclosure Interpretations (C&DIs) that reduce the regulatory burden on firms that wish to use Twitter, Facebook, and other platforms.

Use of Active Hyperlinks to Satisfy Disclosure Obligations

The first C&DI recognizes that some social media platforms, such as Twitter, limit the number of characters or amount of text that can be included in the communication, effectively preventing firms from including the required legends/disclosures together with the other information.

Given the limitations, the SEC advises that it will not object to the use of an active hyperlink to satisfy the requirements of Rule 134(b) or Rule 134(d) in the following limited circumstances:

• 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 SEC cautions that where it is possible to include the required statements, along with the other information, without exceeding the applicable limit on number of characters or amount of text, the use of a hyperlink to the required statements would be inappropriate.

Re-transmission of Social Media Communications

The SEC also addresses concerns about social media posts that are subsequently re-tweeted or otherwise “shared” by third parties, often without the required legend.

As explained by the agency, “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.”

The Message for Reporting Firms

Complying with securities law disclosure filing requirements while promoting your company’s product or service online, or when marketing your firm online, can be a difficult task. To help ensure compliance, it is advisable to develop policies and procedures for the use of electronic communications and limit the use of social media to those employees or consultants who have been properly trained. Best practices would also include having expert legal counsel reviewing public statements before releasing them. Of course, as the SEC’s latest guidance highlights, it is also imperative to stay on top of legal developments, as this area of law is constantly evolving.

If you have any questions about the SEC social media guidance or would like to discuss your firm’s policies and procedures, please contact me, Dan Brecher, or the Scarinci Hollenbeck attorney with whom you work.