Electronic media provides additional avenues for Minnesota companies to conduct securities offerings online. However, the Securities and Exchange Commission has compliance and disclosures rules on these offerings which it disclosed in two interpretations. These interpretations may be important for companies that intend to use the internet to issue securities offerings as part of their business formation.
In April, the SEC addressed circumstances where an issuer distributed an electronic communication that is not considered a prospectus under Rule 134 and on free writing prospectus relating to Rule 433. In Question 110.02, the agency reviewed the use of a social media site that allows recipients to retransmit the communication.
According to the SEC, the retransmission is not attributable to the original issuer of the transmission if the third party is not an offering participant or acting on the issuer’s behalf. The original issuer should not have been involved in the retransmission except for the preparation of the original document.
The SEC also reviewed the posting of an electronic communication that limits the number of characters or text that is displayed and this limitation prevents the full display of required disclosure statements in Question 110.01. It found that the hyperlink would comply with Rule 134 when the communication is distributed through a platform with technological restrictions on the amount of characters or text and includes the required statements that would cause the communication to exceed limitations on the number of characters or amount of text.
This communication must contain an active hyperlink to the required statements and clearly inform the reader that the hyperlink provides access to important or required information. However, the SEC does not allow this hyperlink if the communications platform has the capacity to display the required statements and other information.
Minnesota companies may face numerous regulatory compliance issues on stock and other securities offerings. Prompt legal advice can help avoid violations and contribute to successful business startups and operations.
Source: Minnesota Department of Employment and Economic Development, “Securities and Exchange Commission releases two interpretations relating to social media and online electronic platforms in securities offerings,” Accessed Oct. 17, 2014