April 22, 2014
Corp Fin Issues New “Legend for Twitter” & “Retweeting” Guidance
Yesterday, Corp Fin issued 2 new Compliance & Disclosure Interpretations dealing with social media. The first CDI deals with how to affix legends to tweets & other social media communications. The second CDI deals with retweeting or otherwise repeating another social media communication (ie. company isn’t responsible for third-party retweets). These CDIs apply to the Rule 134 (ie. tombstone ad), Rule 165(c)(1)(ie. business combo) and Rule 433(c)(2)(i)(ie. FWP) contexts.
I sometimes get accused for being a “homer” for Corp Fin. It’s true that I love my alma mater and I wholeheartedly approve most of what the Division does. I particularly like the Office of Mergers & Acquisitions, which played a significant role in developing this guidance. But sometimes I do disagree.
I’m glad that the Staff is getting around to address these issues, but I don’t like the conditions imposed on the first CDI, which blesses the practice of not including a full legend in a tweet (which was an impossible task). In particular, I don’t like that a company must use up valuable Twitter real estate to say a link to a disclaimer is “important.” I don’t agree with the Staff’s concern that someone on Twitter won’t know or appreciate the significance of a hyperlink. Bearing in mind that a tweet is limited to 140 characters – and that the link itself will take up to 10 characters itself (even when shortened) – that doesn’t leave a whole lot of space. Adding a statement that a link is important might use up 10% of your available space. Plus, this is akin to requiring companies – in the paper world – to add a big statement before a disclaimer that says “The following disclaimer is important.” This just doesn’t jibe in an era where folks are talking about minimizing duplicative disclosure.
This CDI does leave open some issues, such as “is affixing an image to a tweet that includes the disclaimer sufficient?” Probably not under this guidance – so Carl Icahn may have to change his tweeting ways (see his March 26th tweet). Another issue is “can the first tweet in a series include the disclaimer rather than including the disclaimer in every single tweet?” This is important to know for live tweeting during earnings calls. Some companies currently have a practice of the first tweet – amidst a series of tweets during an earning call – including a link to the forward-looking safe harbor rather than including the link in each tweet that might have forward-looking information.
At the recent Tulane conference, Michele Anderson, head of Corp Fin’s Office of M&A, noted that the Staff will be watching M&A parties who use social media to see if they are filing with the SEC. She also said that you can’t be cute – if a social media channel allows enough characters to include a full legend – then you must include the full legend and not rely on this guidance to just link to a legend. In other words, you can’t max out a Facebook post with other content to avoid including a legend.
In his blog, Steve Quinlivan jokingly notes that maybe “TIIIITH” (meaning “there is important information in the hyperlink”) will become a well-known acronym as a way to save space…
Who Reads Disclaimers Anyways? The Case to Can Them All
My big beef is with disclaimers in general. To me, this is low-hanging fruit for the SEC’s disclosure reform project. The SEC should change its rules to make all legends and disclaimers optional. I imagine a survey of investors would reveal that no one reads them. And even if a typical investor tried, many are written in a way that makes them hard to understand. In fact, a few of them are required to be in all caps – a style that the SEC’s plain English initiative proved to be difficult to read decades ago. It’s the kind of legalese that is a turn-off for retail investors and is apt to make them decide to chuck their disclosure document in the trash can…
Speaking of fine print, some pretty crazy stuff going on with forced arbitration if a consumer just uses a coupon or “likes” a brand on Facebook. Here’s a list of companies with forced arbitration in their terms of service. Also note that the SEC is not the only federal agency coming to grips with social media – read this alert about the FTC and sweepstakes…