By Cydney Posner
The SEC has posted some new CDIs that relate to the use of required legends in connection with communications on Twitter or other electronic platforms that limit the number of characters used – if there aren't any now, I'm sure there will be. The CDIs also address re-transmission of electronic communications.
Proxy Rules and Schedule 14A; Tender Offer Rules and Schedules; Securities Act Rules - Rule 165 — Offers Made in Connection With a Business Combination Transaction
In this CDI, the staff is allowing the use of a hyperlink to satisfy the legend requirements of Rule 165(c)(1) in connection with certain electronic communications. Specifically, the staff will allow the use of an active hyperlink to a legend 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 legend in its 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 legend and prominently conveys, through introductory language or otherwise, that important or required information is provided through the hyperlink."
So maybe you create a hyperlink using "IMPORTANT" (nine characters), "MUSTREAD" (8 characters) or "VITAL" (five characters)? Adding a hyperlink that says "THESECSEEMSTOTHINKYOUWILLREALLYCAREABOUTTHIS" would take up way too much space.
If there is no limitation on the number of characters and thus the electronic communication can include the required legend along with the other information in the communication, a hyperlink to the required legend "would be inappropriate." Same goes with written communications that are solicitations made in reliance on Rule 14a-12 and pre-commencement written communications subject to Rules 13e-4(c), 14d-2(b) and 14d-9(a).
Securities Act Rules
Rule 134 - Communications Not Deemed a Prospectus; Rule 433 — Conditions to Permissible Post-Filing Free Writing Prospectuses
- Communications under Rule 134 are required to include the statement required by Rule 134(b)(1) and information required by Rule 134(b)(2), unless the conditions of Rule 134(c) are met. In addition, if the communication is the solicitation of an offer to buy or of an indication of interest in the security, the communication must include the statement required by Rule 134(d). Similarly, certain free writing prospectuses distributed under Rule 433 must contain the legend required by Rule 433(c)(2)(i). The same policy and analysis described above will also apply in connection with statement, information and legend required for communications under Rule 134 and Rule 433.
- When an issuer distributes an electronic communication in compliance with Rule 134 or Rule 433 and the communication is re-transmitted, the re-transmitted communication is not attributable to the issuer (and therefore the issuer is not responsible for ensuring compliance with those rules in the re-transmission) if the third party that is re-transmitting is not an offering participant or acting on behalf of the issuer or an offering participant and the issuer has no involvement in the third party's re-transmission (beyond the initial preparation and distribution of the communication). "As explained in Securities Act Release No. 33-8591 (July 19, 2005), ‘[W]hether information prepared and distributed by third parties that are not offering participants is attributable to an issuer or other offering participant depends upon whether the issuer or other offering participant has involved itself in the preparation of the information or explicitly or implicitly endorsed or approved the information.'"