In 2011, Curtis Jackson — better known as 50 Cent — tweeted to his 3.8 million followers urging them to buy stock in a company where he was an investor. He promised they could “double your money” if they “get in now.” The stock price surged 270%. The SEC never went after him, likely because he quickly deleted and replaced the tweets. Today, Jackson has over 12 million followers.

In 2018, Floyd Mayweather Jr. tweeted that Centra Tech’s initial coin offering was about to start: “Get yours before they sell out, I got mine.” DJ Khaled called it a “game changer.” Both were charged by the SEC — not for the tweets themselves, but for failing to disclose that they were paid promoters.

These cases illustrate a gap in securities law that grows wider every year. The SEC’s general solicitation rules were designed for an era when advertising meant newspaper ads and direct mail. They have no coherent framework for social media, where a single post can reach millions of people instantly and the line between sharing information and soliciting investment is invisible.

If 50 Cent’s tweet is a general solicitation, then every entrepreneur who mentions their fundraise on Twitter, Facebook, or Instagram is potentially in violation. If it is not, then celebrities can pump stocks to millions of followers without regulatory consequence. The law currently has no principled way to distinguish between these cases.

The problem is not that the SEC lacks the will to regulate social media. The problem is that the concept of “general solicitation” — designed for a world of classified ads and cold calls — cannot be meaningfully applied to a communications environment where nearly half the world’s population is connected through overlapping social networks.

The solution is not more guidance or more enforcement actions against individual posts. The solution is to abolish the general solicitation ban entirely and replace it with disclosure-based investor protections that work on the platforms where people actually communicate and invest.

Read the full article: Securities Regulation and Social Media, 52 Loyola University Chicago Law Journal (2020).