Tuesday, May 27, 2014

News Flash: SEC Surrenders to Twitter

 By Jim Verdonik
I'm an attorney with Ward and Smith PA. I also write a column about business and law for American Business Journals, have authored multiple books and teach an eLearning course for entrepreneurs. You can reach me at JFV@WardandSmith.com or JimV@eLearnSuccess.com. Or you can check out my eLearning course at http://www.elearnsuccess.com/start.aspx?menuid=3075 or http://www.youtube.com/user/eLearnSuccessor or you can purchase my books at http://www.amazon.com/Jim-Verdonik/e/B0040GUBRW

(This article was published by Triangle Business Journal)

Do you remember the paradox about the immovable object meeting the irresistible force?

It's based on the premise that if an immovable object exists there can't be an irresistible force - and vice versa.

Well, now we know the answer about which one would win.

The Securities and Exchange Commission has long been an immovable object.

Twitter is a relative newcomer, but it's an irresistible force (at least temporarily).

Recently, the irresistible Twitter forced the immovable SEC to develop new rules for how to comply with securities law requirements when using Twitter.

Anyone who knows SEC rules (or documents lawyers write to comply with SEC rules) knew that Twitter's 140-character limitation was on collision course with the SEC now that Rule 506 (c) permits advertising in private placements.  But using social media for registered offerings, proxy contests and other corporate communications also forced the SEC to deal with reality.

The SEC stopped pretending Twitter would disappear occurred when the SEC indicated that public companies could communicate with investors using social media.  The SEC recently issued guidance about legend requirements in social media. 

Many SEC rules require that communications include "Legends."

LEGENDS (in SEC Style) have to USE CAPITAL LETTERS.  Using CAPITAL letters allows everyone to pretend people will read it.  Really, I'm not making this up.

The SEC's guidance on using Twitter or any media is limited to where the LEGEND would exceed a media platform's technical length limitations.  When that happens, you can use an active hyperlink to a document that prominently displays the required legend. 

But don't expect the SEC to let you go wild.  You can't rely on hyperlinks just to save money or to avoid being boring.  It has to be a technological limitation.  If someone re-tweets your Tweet without the hyperlink, you are not responsible unless they were coordinating with you.  Like most SEC guidance, this relates to specific SEC rules.  So you need to check which rules apply to your situation.

Let's jump from Twitter to LEGENDS in general.

My favorite SEC legend story dates back to the 1970s when I first became a securities lawyer.  For certain young companies doing public offerings, the SEC required us to put a legend on the Prospectus' first page to warn investors about high risks:  THESE SECURITIES ARE SPECULATIVE. 

 A few years later, the SEC found out in an investor survey that many investors used this LEGEND to identify offerings to invest in.  It turned out that a fairly large group of investors set aside money to SPECULATE.  So, the SEC's warning actually encouraged people to invest in speculative offerings – exactly the opposite of what the SEC wanted.  After the investor survey results, the SEC rescinded its SPECULATIVE LEGEND rule.

I guess this example shows the SEC has never been an immovable object.  It just wants everyone to think it is.

From this example, we learn that LEGENDS in general have unintended side effects.  Whenever investors see anything written in CAPITALS, they IGNORE it because they know it is BORING!  I'm waiting for SEC to realize that LEGENDS really just tell investors: STOP READING THIS.

So, what's your favorite Government agency doing to you?

Is there hope you will find your irresistible force to move your immovable Government agency?

Or is your business stuck in a regulatory swamp?

 If you would like to learn more about learning how to grow your business or other issues important to your success, you can reach me at JFV@WardandSmith.com or JimV@eLearnSuccess.com. Or you can check out my eLearning course at http://www.elearnsuccess.com/start.aspx?menuid=3075 or http://www.youtube.com/user/eLearnSuccess or you can purchase my books at http://www.amazon.com/Jim-Verdonik/e/B0040GUBRW


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