Federal securities laws prohibit any person from soliciting a proxy without first filing and delivering a proxy statement. The SEC recently adopted amendments to the proxy rules to permit broader use of electronic shareholder forums without violating federal proxy rules. The amendments are designed to facilitate greater online interaction among shareholders by removing two major obstacles to the use of electronic shareholder forms: first, the risk that a statement made by a participant in an electronic shareholder forum could be deemed a solicitation of a proxy; and second, the risk that one who establishes, maintains, or operates an electronic shareholder forum could be liable for statements made by participants in the forum.
In response to the first concern, the SEC adopted Rule 14a-2(b)(6), which provides that most of the proxy rules will not apply to solicitations made in an electronic shareholder forum if the following conditions are satisfied:
- the solicitation is made more than 60 days prior to the date announced by the issuer for its annual or special shareholder meeting; and
- if the issuer announces the meeting less than 60 days prior to the meeting, the solicitation does not occur more than two days following the issuer's announcement of the meeting
Rule 14a-6(g) (the filing of solicitation materials with the SEC), Rule 14a-7 (related to an issuer's obligation to provide a list of security holders or to mail soliciting material to security holders), and Rule 14a-9 (related to false or misleading statements in soliciting materials) will continue to apply to activities in an electronic shareholder forum. Any communications made within an electronic shareholder forum that fall outside the conditions described above will continue to require compliance with the proxy rules.
Once a person makes a solicitation in an electronic shareholder forum in reliance on the new exemption, that person remains eligible to later request proxy authority. Shareholders are, therefore, permitted to "test the waters" prior to a solicitation; this was prohibited under existing rules.
Persons relying on the exemption need to assess whether compliance with other SEC rules and regulations is required. For instance, communications among shareholders in an electronic shareholder forum for the purpose of acquiring, holding, voting, or disposing of the equity securities of a public company might result in the formation of a group for purposes of Regulation 13D. Solicitation activities also may impact the eligibility to file a Schedule 13G, which is not available to persons seeking to influence management of an issuer.
To address concerns regarding liability for statements made by participants in the forum, the SEC adopted a new Rule 14a-17. Under the new rule, one who establishes, maintains or operates an electronic shareholder forum will not be liable for statements made by other forum participants provided that the forum is operated in compliance with securities laws and the issuer's charter and bylaws. However, the person providing information to or making statements on an electronic shareholder forum will still be liable for the content of such communications under the anti-fraud provisions of the federal securities laws. The prohibitions in the anti-fraud provisions against primary or secondary participation in fraud, deception, or manipulation will also continue to apply to those supplying information to the site, and claims will not face any additional obstacles because of the new rule.
By reducing potential liability, the new rules should increase the level of online shareholder interaction, which is now commonplace for many public companies. Shareholders might use such forums as a polling mechanism to elicit the sentiments of the issuer's managers or other shareholders on various potential actions. These forums also may make it easier for investors to mobilize against issuers. Issuers can participate in or establish forums to gauge shareholder interest on a variety of topics. Issuers should, however, carefully weigh the risks of participating in or establishing these forums, including:
- an inadvertent release of material non-public information in violation of Regulation FD
- communications made during the exemption period may later be construed as solicitations requiring compliance with the proxy rules. The SEC indicated that postings made during the exemption period that remain in the forum after expiration of the exemption period may later be construed as a solicitation that would require compliance with the proxy rules, unless such communications fall within another exemption. The SEC suggests providing participants with the opportunity to delete postings or simply having the forum "go dark" during this period.
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