How Not to taNk your IPo by tweetINg

How Not to Tank your IPO by Tweeting
By Christine Strumpen-Darrie
Three-quarters of Fortune 500 companies, including Berkshire
Hathaway and Exxon, are active on Twitter, Facebook, companysponsored blogs or another social media site. Richard Branson,
Steve Forbes and Bill Gates are among a growing list of C-suite
tweeters. Even the SEC tweets daily.
The informal nature of the medium encourages content to be
posted that might not otherwise make its way into a press release—
Twitter Q&A hosted by RyanAir
Have you ever considered getting rid of the cargo hold and fitting
seats down there? Seems an awful waste of space.
[CEO response] Not seats but beds. Mile high club anyone?
In recent years, there have been a series of social media posts
that have drawn attention.
• Netflix. When Netflix’s CEO posted a 50% increase in hours
streamed on his personal Facebook page, the SEC sent Netflix
a “Wells” notice warning of potential enforcement action for
selective disclosure in violation of Regulation FD. The SEC decided not to pursue the enforcement action and instead issued a
report to help companies navigate social-media related disclosure issues.
• Zipcar. The CEO of Zipcar tweeted a link to a Boston Globe article announcing that Avis had signed an agreement to buy Zipcar, subject to shareholder approval. Zipcar filed the tweet and
the article under cover of 8-K out of concern that the tweet could
have been construed as shareholder solicitation material.
• Dell. Carl Icahn tweeted, “Twitter is great. I like it almost as
much as I like Dell.” at a time when Icahn was soliciting votes
against the proposed buy-out of Dell by Michael Dell. Icahn filed
the tweet under cover of Schedule 14A reportedly out of concern
that the tweet could have been deemed proxy solicitation material.
• Tesla. Tesla’s CEO, Elon Musk, has made a habit of tweeting
releases of corporate information. For example, he tweeted, “Really exciting @TeslaMotors announcement coming on Thursday. Am going to put my money where my mouth is in v major
way.” Tesla’s stock price was 2.5% up at close of business after
the tweet on trading volume substantially heavier than the prior
30-day average.
• Francisca Holdings Corp. Francisca Holdings Corp. fired its
CFO after he tweeted during a quiet period, “Board meeting.
Good numbers = happy board.” Francisca’s stock price jumped
15% in advance of earnings after the tweet.
The SEC has not yet provided guidance on social media activity
during an IPO, but an issuer gearing up for an IPO should keep
these rules of play in mind.
#quiet period Make sure the deal team understands what they
can and cannot say through social media during the IPO process
at least 30 days before the issuer files a registration statement (or
if earlier, before the issuer hires an underwriter). Social media
communications should continue to be monitored until 25 days
after pricing (and then going forward for FD concerns).
#keep posting If an issuer already has an active corporate Twitter account, Facebook page or blog, keep posting! But don’t post
anything that could be construed as an offer (broadly defined).
Issuers can’t gun jump, even on Twitter.
#tell the market If an issuer plans to release material information through social media, tell investors. Refer investors in press
releases, on the corporate website and in SEC filings. Zynga
pointed investors to its corporate blog and Facebook and Twitter
pages for regular updates. AutoNation directed investors to its
CEO’s Facebook and Twitter pages.
#be consistent If an issuer decides to use social media as a tool
to disseminate information, post regularly and consistently. Investors need to know whether they can rely on that channel for
information or not. An issuer should settle on a means of communication, alert investors, and stick with it.
#don’t start now Do not create a new social media page in advance of an IPO and start posting for the first time during the
IPO. Even if an issuer only posts ordinary course factual business information on a new social media page, the fact that a new
social media account was created could be viewed as an effort to
condition the market. Likewise, an IPO is not the time to give a
social media page a makeover.
#personal pages Officers and directors can continue to maintain
active personal social media accounts, but they should not post
material information about the issuer on their personal pages.
#social media policy Create a social media policy that lays out
the rules of play for officers, directors and employees. Conduct a
training to make sure that employees are aware of the policy and
understand the consequences for violations. Send a reminder
about the social media policy in advance of the initial filing date.
limited information permitted by Rule 135. Redundant systems
are the safer course—i.e. social media communications accompanied by parallel traditional news releases and SEC filings. For material news releases, issuers should use social media channels as
an additional outlet, rather than the sole outlet. PepsiCo Inc., for
example, tweeted excerpts from its earnings release and related
comments from its CEO shortly after issuing its earnings release.
#slip-ups What if there’s a social media slip-up? Consider:
#summaries If the information that is posted is a summary,
which it often will be on Twitter since there’s a 140 character
limit, label it as a summary and provide a link to more detailed
information.
#non-GAAP information If the information that is posted is a
non-GAAP measure, also post a reconciliation to a GAAP measure, or provide a link to the reconciliation.
#thinkB4youpost Third party information (such as a research
report) that an issuer re-posts on a social media platform could
be attributable to the issuer, so treat re-tweeted information as
your own. Adding a disclaimer to third party information that an
issuer re-posts would not be sufficient to shield an issuer from
liability for its content.
#market feedback An issuer does not have to respond to its social media followers, even if they post inaccurate information on
its social media page. However, some companies have chosen to
use social media as a tool to solicit information from the market.
Zillow Inc. has solicited questions for its quarterly earnings call
via Twitter and Facebook.
#retweets If a third party re-tweets an issuer’s post, and the issuer was not involved in the re-tweet, the re-tweet will not be
attributable to the issuer.
#youtube Pre-recorded videos posted on YouTube and other
streaming social media sites posted during an IPO may be considered “written” offers.
#dateyourposts If the social media outlet does not automatically date activity, an issuer should date its posts to prevent the
market from relying on obsolete historical information. An issuer is not required to pull down outdated historical information,
but needs to make clear which information is still relevant.
#redundant systems Any communication that an issuer has already filed with the SEC or otherwise released publicly can be
re-posted through social media. For example, an issuer can tweet
a link to its IPO announcement press release. But the link should
be posted without additional commentary because the safe harbor is lost if the announcement contains anything other than the
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• Could a plaintiff’s lawyer, judge or the SEC view the tweet or
post as an offer (broadly defined) of the IPO shares? If not, the
post should generally be fine.
• Is there a safe harbor for the post? The most common safe harbors are:
Rule 134/135 : certain prescribed categories of information
(e.g. name of issuer, title of securities, timing of offering)
Rule 169: regularly released factual business information
Rule 163A: communications more than 30 days before publicly
filing the IPO registration statement that do not mention the offering
• Was the post a permitted free writing prospectus (“FWP”)? If
it was posted after filing an IPO registration statement that included a price range, it may qualify as an FWP if it is legended
and filed with the SEC as soon as practicable after it is posted.
#damagecontrol What should a general counsel do if she discovers a social media slip-up?
Make it Public u make the information public through a traditional channel as soon as possible.
Disclose it in the IPO Prospectus u consider whether to include
the post in the IPO prospectus, and if it is added and it contained
any inaccurate or incomplete information, correct it.
Consider Risk Factor u consider necessity of a risk factor in the
IPO prospectus that tells investors about the post.
Delay the IPO u consider whether the IPO should be delayed to
distance the post from the IPO launch so that it is less likely to be
seen as a communication that could have influenced the market’s
appetite or pricing for the IPO shares.
Christine Strumpen-Darrie is special counsel in the Corporate Department of Fried, Frank, Harris, Shriver & Jacobson LLP’s New
York office.

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