While a company is not responsible for third-party commentary posted on its social media platforms (including a company website), re-tweeting a third-party Twitter post could raise a red flag. Given the broad application of “gun-jumping” restrictions, it is possible that the SEC could consider seemingly ordinary, noncontroversial communications as “gun-jumping.” For example, if appropriate care is not taken, a significant increase in Internet advertising or a company website revamp immediately preceding an IPO could be viewed as “gun-jumping” if it is deemed to be stimulating interest in the IPO. Additionally, companies often subject social media communications to less stringent review than traditional print publications or press releases. The often casual and spontaneous nature of social media communications, combined with the ability to disperse messages instantly and broadly, heightens the risk of inadvertent gun-jumping. “Gun-jumping” restrictions are wide-reaching: They apply to all forms of communications and cover press releases, media interviews, website postings, emails, internal company announcements, Facebook posts, Twitter tweets, YouTube videos and online commentary. Gun-jumping consequences can be serious and can include recission, a cooling-off period delaying the IPO or sanctions/fines. For an IPO, the restrictions start as early as the time the company reaches an understanding with the managing underwriter (potentially before the company even holds its IPO organizational meeting) and end 25 days after the pricing of the offering.
securities laws prohibit communications that improperly stimulate interest in the securities offered in an IPO. securities law restrictions on issuer publicity and communications before, during or after a public offering. securities laws, that generally refers to a violation of U.S. “Gun-jumping” is an expression, not defined in the U.S. Instituting well-defined policies and procedures governing social media is critical to avoiding inadvertent violations and the penalties that can follow, which may potentially impact the IPO. Companies preparing to go public need to understand the various SEC rules restricting communications during the IPO process. To date, the SEC has not brought an action for violation of its IPO publicity restrictions involving social media however, as corporate social media continues to proliferate, it is likely only a matter of time before the SEC acts.
However, when a company plans an IPO in the United States, social media’s powerful benefits can pose significant risks. Promising a fast and low-cost means of disseminating information, social media also offers the potential for even broader distribution through third-party word-of-mouth advocacy. Increasingly, companies are using social media, such as Facebook, Twitter, YouTube and other platforms, to engage with clients, customers, employees, shareholders and other key constituents.
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