The Use of Social Media by Activist Investors
The SEC has recently issued guidance for using social media in connection with public offerings, business combinations, proxy contests and tender offers. In these contexts, SEC legending requirements have precluded the use of social media platforms, like Twitter, that limit the number of characters that can be included in a communication. In its recent guidance, however, the SEC stated that its staff will not object to the use of a hyperlink to satisfy the legending requirements under the following circumstances:
- The communication is distributed through a platform that has technological limits on the number of characters or amount of text;
- Including the required legends would cause the communication to exceed these limits; and
- The communication contains an active hyperlink to the legends and prominently conveys, through introductory language or otherwise, that important or required information is provided through the hyperlink.
The SEC did not specify wording for the hyperlink, but issuers will presumably settle on hyperlinked statements such as “important information” or “required disclosure.”
The guidance is likely to result in an increased use of Twitter and other social media platforms that restrict character use in connection with the type of transactions to which the guidance applies. In particular, shareholder activists have already embraced social media. Carl Icahn has publicly declared his intention to use Twitter to promote his activist agendasand has used Twitter in campaigns against several companies, including Apple and Dell. The SEC’s recent guidance is likely to lead to greater use of Twitter in activist campaigns.
Companies that do not currently use Twitter as part of their communications strategy should consider starting to use it, both to assist in ordinary-course messaging and to avoid ceding a battlefront before an activist engages.
The SEC’s recent guidance also addressed an area of concern for issuers involved in securities offerings who use social media platforms to distribute messages intended to comply with Securities Act safe harbors. Some social media platforms facilitate the retransmission of messages by third parties under circumstances that may not comply with the safe harbors. According to the SEC, 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 retransmission, the retransmission would not be attributable to the issuer.
This guidance is consistent with the SEC’s long-standing position that issuers are generally not responsible for electronic communications of third parties unless they have taken steps to associate themselves with the communications—for example through having “adopted” them or through “entanglement” in their preparation. Note that the SEC’s recent guidance does not supersede the SEC’s 2008 and 2013 guidancesregarding the use of electronic media in compliance with Regulation FD. Issuers should continue to use social media to communicate material nonpublic information only if they have provided appropriate notice of the specific social media channels they use to disseminate such information or simultaneously transmit the information through recognized Regulation FD compliant channels.
 See Compliance and Disclosure Interpretations Questions 110.01, 110.02, 164.02, 232.15 and 232.16.
 The guidance applies in the context of legends required pursuant to Rules 134(b), 134(d), 165(c) and 433(c)(2)(i) under the Securities Act of 1933, and Rules 14a-12, 13e-4(c), 14d-2(b) and 14d-9(a) under the Securities Exchange Act of 1934.
 See David Benoit, “Carl Icahn Wants to Create Twitter Movement,” The Wall Street Journal (Sept. 9, 2013).
 The guidance applies in the context of retransmission of electronic communications made in compliance with Rules 134 or 433 under the Securities Act of 1933.
 See Use of Electronic Media, Release No. 33-7856 (Apr. 28, 2000).
 See Commission Guidance on the Use of Company Websites, Release No. 34-58288 (Aug. 1, 2008), regarding when information posted on a company web site is deemed “public” for purposes of Regulation FD.
 See Report of Investigation Pursuant to Section 21(a) of the Securities Exchange Act of 1934; Netflix, Inc., and Reed Hastings, Release No. 69279 (Apr. 2, 2013), regarding extension of the SEC’s approach to social media generally.