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Private Offerings in the Age of Surveillance Capitalism and Targeted Advertising

Posted by on Friday, May 28, 2021 in Notes, Volume 74, Volume 74, Number 4.

Christina M. Claxton | 74 Vand. L. Rev. 1187 (2021) |

Social media platforms, as well as the internet more broadly, have fundamentally altered many aspects of modern life. In particular, platforms’ targeted advertising mechanisms have revolutionized how companies reach consumers by providing advertisers more effective tools for reaching consumers and by tailoring content to consumers’ individual interests. Advertising, in many respects, has always been targeted—it has always sought to reach and influence a certain set of consumers. Today’s targeted advertising, however, allows advertisers to influence consumer behavior on an increasingly granular and intimate level, further skewing the power imbalance between advertisers and consumers. This new dynamic, together with changes to advertising rules for private securities offerings, creates a regulatory gap: should issuers be allowed to promote private offerings through targeted advertising on social media?

This Note examines that gap and considers how contemporary targeted advertising mechanisms interact with the law of private securities, which has long restricted issuers’ use of advertising in promoting private offerings. These and other restrictions reflect an understanding that private securities are more volatile (and, as a result, often yield higher returns) than public securities. In 2013, though, the Securities and Exchange Commission (the “Commission” or “SEC”) lifted a longstanding ban on the use of general solicitations for private offerings, paving the way for issuers to employ widely disseminated advertisements to solicit investors. But the Commission did not anticipate—and could not have anticipated—the ways in which social media and “surveillance capitalism” would change advertising, and the current regulatory regime does not contemplate how targeted advertising fits into the private offering landscape.

With the ability not only to target but also to influence specific consumers, private securities issuers can wield new power with targeted advertising. Consumers may understandably be enticed by promises of high returns, and advertisements for private offerings can now appear in consumers’ social media newsfeed alongside personal and professional content. More importantly, targeted advertising algorithms curate personalized content with the goal of imperceptibly and gradually changing consumer thinking, perhaps leading a user to finally click on an advertisement she once scrolled past. While such a dynamic may be acceptable, and even desirable, with respect to material goods and services, it raises complicated and pressing concerns in the context of private securities offerings. This Note proposes modifications to the private securities rules that would prohibit the use of targeted advertising in private offerings—a change that would adequately remediate the harms posed and provide clarity to the many stakeholders involved.

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Christina M. Claxton