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Of Touting, Tweets and Advertising

Last month, the Securities and Exchange Commission issued this public statementwarning about touting of securities by celebrities:

Celebrities and others are using social media networks to encourage the public to purchase stocks and other investments.  These endorsements may be unlawful if they do not disclose the nature, source, and amount of any compensation paid, directly or indirectly, by the company in exchange for the endorsement.

The SEC’s statement doesn’t provide a citation for its claim of unlawfulness.  No doubt, the SEC has in mind Section 17(b) of the Securities Act of 1933 which provides:

“It shall be unlawful for any person, by the use of any means or instruments of transportation or communication in interstate commerce or by the use of the mails, to publish, give publicity to, or circulate any notice, circular, advertisement, newspaper, article, letter, investment service, or communication which, though not purporting to offer a security for sale, describes such security for a consideration received or to be received, directly or indirectly, from an issuer, underwriter, or dealer, without fully disclosing the receipt, whether past or prospective, of such consideration and the amount thereof.”

There is not directly analogous provision in the California Corporate Securities Law 0f 1968.  However, the CSL does regulate “advertisements” which are defined as:

“any written or printed communication or any communication by means of recorded telephone messages or spoken on radio, television, or similar communications media, published in connection with the offer or sale of a security”.

Cal. Corp. Code Section 25002.  With certain exceptions, the CSL prohibits any person from publishing any advertisement in California concerning any security sold or offered for sale in California unless a true copy of the advertisement has been previously filed with the Commissioner of Business Oversight.  Cal. Corp. Code § 25300.  The Commissioner has adopted a rule governing the standards for advertising, 10 CCR § 260.302, including the following apropos to touting:

If the advertisement contains any endorsement or recommendation of the securities by any public figure, whether express or implied (for example, by the inclusion of such person’s photograph or name in the advertisement), full disclosure shall be made of any compensation or other benefit given or promised by the issuer or any person associated with the issuer to such person, directly or indirectly.  The disclosure required by this Subsection (g) shall be made in the same document containing the advertisement or, if such advertisement is presented on radio or television, as part of the same program, without any intermission or other intervening material.”

The last requirement alone would make it difficult for “tweet” to meet the Commissioner’s advertising standards.

For more information on touting and tweeting, see this post by Doug Cornelius at Compliance Building.

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About this Author

Keith Paul Bishop, Corporate Transactions Lawyer, finance securities attorney, Allen Matkins Law Firm
Partner

Keith Paul Bishop is a partner in Allen Matkins' Corporate and Securities practice group, and works out of the Orange County office. He represents clients in a wide range of corporate transactions, including public and private securities offerings of debt and equity, mergers and acquisitions, proxy contests and tender offers, corporate governance matters and federal and state securities laws (including the Sarbanes-Oxley Act of 2002 and the Dodd-Frank Act), investment adviser, financial services regulation, and California administrative law. He regularly advises clients...

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