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.[1]  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.”[2]

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 agendas[3]and 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.[4]

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.[5]  Note that the SEC’s recent guidance does not supersede the SEC’s 2008[6] and 2013 guidances[7]regarding 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.