Social Media: Parsing the Hypos Webinar Wrap-up – Part 2
Following on the first part of this post, below are the remaining 5 Hypothetical situations presented during a panel discussion on the SEC’s recent Section 21(a) report regarding Netflix. Like the first post, we share the hypotheticals that were presented to the panel members and offer a summary of the thoughts they had regarding the legality and the effective IR strategy that can be used.
Hypo #6: Corporate Secretary Blogging Vote Reminder
Acme’s corporate secretary blogs: ‘Don’t forget to vote. And vote for management’s recommendations.’
Dave Lynn discussed this hypo at length and mentioned that a key consideration in this case is the term “solicitation” – that is really broadly defined in the federal securities laws and it’s encompassing efforts to seek or influence the voting of proxies, regardless of whether you’re seeing authorization to act as a proxy, including any communication under totality of the circumstances. That’s part of a continuous plan ending in a solicitation that’s paving the way for its success. That is what has been said to be a solicitation.
So you can see how someone might read the part in particular that says, “And vote for management’s recommendations,” as something that’s trying to influence the voting of proxies. And therefore, you’d have to consider the filing obligations that you would have.
He went on to mention the fact that this is really an untested area as back in 2008, the SEC also adopted electronic shareholder forum exceptions. And that nothing really has really been said since then as to whether the exchange of views through social media could constitute an electronic shareholder forum for the applicability of those exceptions, which provide exceptions from things like the solicitation rules if you’re removed from the annual meeting and also provide some limitation on liability for an issue or for things that other people are saying in that context.
So you can envision a world where investors are expressing views through Twitter or Facebook pages, and you might want to be in a position to apply those sorts of exceptions in social media. So that’s still a bit of uncharted territory out there.
Hypo #7: Shareholder Tweets Complaint About Annual Meeting & CEO Tweets Response
During the meeting, a shareholder tweets that the meeting was poorly run. Afterwards, the CEO tweets in response: ‘Everything was hunky dory. No one else complained.’
This hypo was skipped during the webcast, but Joe Hall notes: ‘Getting into public spats with shareholders is usually the last thing you want your CEO doing. It’s not clear there are any legal issues here.’
Hypo #8: CEO Blogs ‘Won’t Merge’ & Merger Announced Two Weeks Later
In response to a newspaper article claiming that a merger is imminent, CEO blogs: ‘We would never merge with company X.’ Two weeks later, a deal with company X is announced
The main take away from this hypo was that a company should have a ‘No comment’ policy on these types of things. Once a comment is made, it is difficult for the company to deny it and they could be held liable for the initial statements that went against the actual outcome.
The same kind of policy that you would apply in any communication in and around a merger or acquisition, which is almost always going to be material non-public information, has to be dealt with in the same way, whether it’s on social media or whether it’s through other mechanisms, like a press release.
Hypo #9: Financial Advisor Defends Fairness Opinion Criticism in Tweet
After merger with company X is announced, some criticize the deal and think shareholders are being lowballed. In response, Acme’s financial advisor tweets “Our fairness opinion is through. Fair deal.”
The basic take away from this hypo is that the same rules apply in that just like you would not allow your external advisers or your consultants or your employees to go out into the public square and talk about your business today – that shouldn’t change just because we’ve moved into a world where social media is pervasive.
Hypo #10: CEO Tweets After Confidential IPO Submission
After filing a confidential submission with the SEC – but before IPO filing publicly announced – CEO of an emerging growth company tweets: ‘Things going gangbusters. Just signed up 3 major clients.’
This hypo was skipped during the webcast, but Joe Hall notes:
This should be analyzed for potential gun jumping issues like any other IPO pre-filing communication. This could potentially be seen as an ‘offer’ to sell securities of the company. There is a safe harbor for communications about factual business information, consistent with past practice, in the 30 days prior to filing a registration statement which could be considered.
Again, the brevity and informality of the communication could also be a problem from a liability perspective. Communications should be consistent with the company’s story in the prospectus. How do you quantify what ‘going gangbusters’ means from a business perspective? Are these three customers unambiguously ‘major’?
Cybersecurity is a serious concern. As has been widely reported, the AP Twitter feed was hacked a few weeks ago and a message indicated the White House was under siege was sent out. The markets dropped before the hack was discovered. The SEC has said that it is investigating this incident like any other market manipulation or fraud. Companies need to be sure that their social media tools are sufficiently secure and that access is restricted, just like any other disclosure tools. Companies can look to their protocols for press release and EDGAR access/submissions (passwords, etc.) as a starting point. Companies should consider implementing similar protocols for their social media accounts and more since these tools are generally more accessible.
It was evident that more time was needed. Broc noted they’ll re-visit this topic in six months time to see how social media practices have developed.