The Crowdfund Intermediary Regulatory Advocates organization (“CFIRA”) yesterday sent a letter to the SEC highlighting the importance of social media to crowdfund investing. Specifically, the letter proposes that issuers of equity who use the JOBS Act’s crowdfunding exemption should be allowed to send “notices” — tweets, Facebook posts, status updates and the like — to potential investors “without being deemed to be engaged in general solicitation.”
The JOBS Act removes the ban on general solicitation for crowdfunded enterprises, but the required legends or disclosures for such solicitations are problematic in the realm of social media, notes CFIRA. “For example, twitter only permits 140 characters in any given communication,” reads the organization’s letter, “and a Facebook ‘Like’ has no characters.”
Recognizing that business owners will want to promote their companies through the most popular social media outlets, CFIRA created a list of proposed permitted communications between issuers and potential investors, which you can find below.
- We believe issuers should be permitted to send notices to investors without being deemed to be engaged in a general solicitation. The content of such communication should be regulated in a manner consistent with the notices permitted to be provided by a crowdfunding issuer.
- Given the developing role of social media, including mandated legends or disclosures in a section 230.506 general solicitation is problematic. For example, twitter only permits 140 characters in any given communication, and a Facebook “Like” has no characters. While we understand and support the information that legends provide, we suggest that the rules permit the use of social media without providing such legends/disclosure, so long as appropriate legends/disclosure are provided in an effective manner. The rules should specify when and in what form appropriate legends/disclosures should be provided (e.g. on the crowdfunding portal, to which the social media is linked, although not necessarily limited to this).
- Per the legislation, we assume that, while general solicitation is restricted to the rules for the issuer, any uncompensated communication by other than the issuer, out of the issuers control, would not constitute general solicitation (e.g. someone receiving a solicitation from the issuer via social media passing it along in their network our in printed form without prompting or request, although not limited to this necessarily).
- Exemption language should be included which reflects distribution or promotion of offerings via “0 characters” such as one-click buttons for Facebook “Likes”, Google+1, Pin It, retweets, etc.
- We suggest the following information be permitted in a “crowdfunding notice” (and would therefore not constitute a general solicitation in a section 203.506 offering).
The complete text of CFIRA’s letter to the SEC is available here.