Tweeting during a quiet period
Ruby Tuesday was having a great Monday. In July the casual dining chain announced a big secondary offering and CEO Sandy Beall, who founded the company 37 years ago, exuberantly posted the following (uncorrected) message on Twitter, the social networking site: ‘In new York raising approximately 70 million in equity to further strenghten our brand.’
Beall’s tweet didn’t violate Reg FD – the secondary offering had been announced in a press release, and a preliminary prospectus had been filed with the SEC. The question is whether his tweet broke SEC rules around public stock offerings.
Peter Romeo, partner at Hogan & Hartson in Washington, DC, cautions that company officials should avoid ‘gun-jumping’ by making public statements about offerings while they’re in process. But he feels Beall’s tweet is unlikely to have violated SEC rules for free-writing prospectuses.
‘While it may have been unwise for the chief executive to say anything about the offering, his statement appears essentially innocuous in the larger context of what can cause concern at the SEC,’ Romeo says.
Sticking to the rules
Rules 134 and 135 under the 1933 Securities Act let companies make limited announcements about proposed offerings, as Ruby Tuesday did in its release that Monday in July. ‘The CEO’s communication did not add anything significant to what was already permitted to be said, other than to indicate that he was working on the offering personally,’ Romeo explains.
Beall, who seems new to micro-blogging, has more than 50 Twitter followers, including Carly Harrington, a business reporter at the Knoxville News Sentinel in Tennessee, near Ruby Tuesday’s hometown of Maryville. Unable to reach anyone at the company, and with no information about the offering price, Harrington quoted Beall’s tweet in an article about the capital raising.
This was the first time Harrington had taken a direct quote from Twitter. ‘It was simply an occasion where we could not get in contact with officials at Ruby Tuesday,’ she says. ‘This was a line of communication from the CEO of the company, which he put out there personally in a public forum and which we felt spoke for the company. It was appropriate for what we were writing about.’
Don De Laria, vice president of IR at Knoxville-based Regal Entertainment, started following Beall’s Twitter stream after seeing Harrington’s article. ‘In general it seems like he’s tweeting according to best practices: a lot about the company but a lot of personal stuff, too,’ De Laria says. ‘You feel like you’re getting to know this guy. That’s the way to do it – not only link to press releases, but also make it personal now and again.’
George Colony, CEO of Forrester Research, which has been public since 1996, tweets and blogs. Karyl Levinson, vice president of corporate communications at Forrester, says Colony follows the same disclosure guidelines across all types of media. ‘He knows the behavior of a public company,’ Levinson notes.
Colony recently blogged about why CEOs should use social media like Twitter: ‘The only way CEOs can understand social technologies is by using them. Social media technology is like sex: it’s fun to talk about and read about, but you can’t truly comprehend it unless you do it.’
What keeps lawyers up at night?
‘This is an intriguing situation. In the end it’s no harm, no foul. But it’s emblematic of communications that can arise in a deal and keep lawyers up at night.
‘In-house general counsel would usually prefer that their CEO not tweet, blog, email or update his or her Facebook page with information about a sale of securities in the middle of the offering. It’s too easy to forget that these are all written communications for the purposes of securities laws.
‘In this case, the chief executive didn’t disclose anything that wasn’t already disclosed in the company’s press release and preliminary prospectus for the offering. The fact that he said it was raising $70 mn is a little troubling – as is the newspaper picking up on it – because that wasn’t in either of those two documents.
‘But if you look at the number of shares being offered and the stock price in the preliminary prospectus as the last closing price, you can easily calculate approximately $70 mn.
‘It comes down to whether this was an offer to purchase securities on behalf of the issuer. In my view, it wasn’t – but as a lawyer, I wouldn’t want to have that conversation with the SEC during an offering.’