Quiet period, noisy tweet

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.’

Twitter is a free service that allows users to post messages of up to 140 characters known as ‘tweets’. It was co-founded by Jack Dorsey, Evan Williams and Biz Stone in 2006. Posts are displayed on the author’s profile page and delivered to his or her subscribers, commonly known as ‘followers’.

Beall’s tweet didn’t violate Reg FD – the secondary offering had already 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, regardless of the distribution mechanism. He feels, however, that Beall’s tweet is unlikely to have violated SEC rules for free-writing prospectuses.

‘While it may have been unwise for the CEO 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 Securities Act of 1933  permit companies to make limited announcements about proposed public offerings, as Ruby Tuesday did in its press release on that Monday in July. There would have been a problem if Beall’s Twitter posting had added any new information or materially amended anything that was already in the public disclosure, but Romeo does not think this was the case on this occasion.

‘The chief executive’s communication presumably did not add anything significant to what already was 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. They include 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 decided to quote Beall’s tweet in an article about the capital raising.

This was the first time that Harrington had taken a direct quote from a tweet. ‘This was simply a case where we could not get in contact with officials at Ruby Tuesday,’ she recalls. ‘The tweet was a line of communication from the CEO of the firm, 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.’

How and why
Don De Laria, head of investor relations 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.’

For any executive considering taking up this popular new communication tool, the rules are similar to those for blogging or group email. Anything that is put out through Twitter should be considered completely public, but at the same time it can also be considered an official communication. This being the case, anything posted on Twitter or in blogs should be treated with the same sensitive consideration as a press release or other public filing. 

George Colony, chief executive of Forrester Research, which has been public since 1996, blogs and uses Twitter. Karyl Levinson, vice president of corporate communications at Forrester, says that 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,’ he wrote. ‘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.’

Since its inception three years ago Twitter has achieved amazing success. According to a February 2009 posting on Compete.com, a web analysis site, Twitter is the third-most used social networking service. While the company does not release user data, Compete.com estimates that Twitter has 6 million unique monthly visitors and 55 million monthly visits. With figures like that, it’s certainly easy to see why it’s in the interests of executives and their advisers to familiarize themselves with this new communication tool. 

What keeps lawyers up at night?

‘This is an intriguing situation. In the end it’s no harm, no foul, but it is emblematic of communications that can arise in a deal and keep lawyers up at night.

‘In-house general counsel would generally prefer that their CEO and other senior executives not tweet, blog, email or update their Facebook pages 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 CEO 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 the company was raising $70 million is a little troubling, as is the newspaper picking up on it, because that information 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 million.

‘It all 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 certainly wouldn’t want to have that conversation with the SEC during an offering.’

Source: Carol Stubblefield, partner, Baker & McKenzie, New York