OK, that has GOT to be the most boring title for one of the most exciting developments in the securities markets, right?
I've mentioned before that the SEC is taking a "free market disclosure" approach to Regulation A. In contrast to what happens in the context of an IPO, where you can only make very limited communications outside the prospectus, in Regulation A you can make "testing the waters" communications up to the time the SEC qualifies your offering.
Additionally, you can market to prospective investors after qualification, and we are seeing a lot of this type of activity right now. As we know, "securities are sold and not bought" and traditionally the "selling" part of this is done by broker-dealers picking up the phone. But Regulation A permits companies to make all sorts of snazzy communications on social media. We have to bear in mind, however, that some very traditional securities law principles apply to these very non-traditional communications:
- These communications are "offers" of securities. When I used to teach "introduction to securities law" type courses, I would often say "everything's an offer" and that's not far from the truth. Any communication that "conditions the market" for an offering of securities is an offer which must be made pursuant to registration with the SEC or an exemption from registration. In order to be exempt under Regulation A, all these offers MUST be preceded by or accompanied by the Offering Circular filed with the SEC. "Accompanied by" encompasses "linked to" so this requirement is easy to comply with. So always include a link to the Offering Circular from press releases, videos, Instagram and Facebook posts and the like, and you should also tell investors to read the Offering Circular before investing.
- Do not include anything that is inconsistent with the Offering Circular. In the event that the communications reflect a "fundamental change" from the information in the Offering Circular, you're required to file a post-qualification amendment to your Offering Statement, but you should be sensitive even to differences that aren't "fundamental."
- Remember that the same liabilities that apply to the disclosure in the Offering Circular apply to these communications. You'll be liable for misleading statements on Instagram unless you can show you couldn't have known they were misleading.
- If third parties are publicizing information about your offering under their own name they should make sure they comply with Section 17(b) of the Securities Act.
I've seen several communications already that violate these rules, in press releases and on social media. These errors could have been avoided if the companies making them had cleared these communications with experienced securities lawyers. This is not a market where a "DIY" approach works. Get a lawyer, people (and as always, this isn't legal advice)!