Last week, the staff of the U.S. Securities and Exchange Commission’s (SEC) Division of Corporation Finance issued guidance intended to facilitate the use of social media in connection with capital markets transactions, business combination transactions, tender offers and proxy contests. The guidance is intended to make it easier to satisfy the legend requirements applicable to certain transaction-related electronic communications.

Background -

The federal securities laws generally restrict the type of information that may be disseminated to investors or security holders outside of a registration, proxy or tender offer statement, on the theory that an informed investment or voting decision should be confined to the four corners of disclosure documents filed with the SEC. Over time, however, SEC rules have been adopted that permit issuers and third parties to disseminate written (including electronic) transaction-related communications outside of these documents so long as certain conditions are satisfied. A condition that often applies is the requirement to include a prominent statement or legend in the written communication that refers readers to the disclosure document filed or to be filed with the SEC.

The legending requirements applicable to transaction-related communications, which predate the rise of social media, effectively have prevented issuers and third parties from using social media channels with character or text limitations, as the required legends typically exceed the character or text limitations.