This 🚀 Can Cause Trouble as Emojis Help Prove Securities Fraud

A veteran in-house lawyer recently joked that she needed to “up her emoji game” just to keep pace with her company’s younger workforce. It was a light moment—until she added that emojis were showing up in investigations and litigation with increasing frequency, often with serious consequences.

For compliance officers and in-house counsel, these tiny symbols can create big problems; for prosecutors and plaintiffs’ lawyers, they’re gold. A growing body of cases show how text messages using emojis are being used to prove intent, misconduct, and liability in high-stakes securities litigation and enforcement actions.

Emojis as Admissible Evidence

The precise meaning of an emoji can be ambiguous and prone to misinterpretation; but that doesn’t make it inadmissible. As recently observed by one district court, emojis are symbols and, like language, can be ambiguous, requiring context to help clarify meaning. Nevertheless, emojis can be admissible to establish liability if they convey an idea that would otherwise be legally actionable. A survey of recent cases shows how emojis have been used to prove the legal elements of the claims being litigated.

Emojis in Securities Litigation

Emojis have been used as evidence of an “expectation of profits,” a required element for a digital asset to qualify as an “investment contract” and therefore a “security” under the Howey test. Under the Howey test, an investment contract exists when money is invested in a common enterprise with an expectation of profits derived from the efforts of others.

In a tweet promoting investment in certain non-fungible tokens, a blockchain developer used these emojis: 🚀(rocket ship), 📈(chart increasing), and 💰(money bag). Although the literal word “profit” wasn’t included in any of the tweets, the court ruled that using those emojis to promote NFT sales could “objectively mean one thing: a financial return on investment.”

Plaintiffs have also cited emojis in “meme stock” litigation as evidence of a material misrepresentation when the emoji has acquired particular meaning within meme stock subculture. For example, plaintiffs have argued that a “moon face” emoji similar to this: 🌝(full moon face) conveyed that stock is “going to the moon.”

Following this rationale, other seemingly random emojis that have acquired a common understanding in meme stock subculture could be used in future litigation. For instance, 🍗(poultry leg) is used to denote “tendies,” shorthand for gains or profits from trading.

Similarly, 💎(gem stone) can refer to “diamond hands,” a popular meme stock phrase that encourages other investors to resist selling an asset during periods of high price volatility. Conversely, 🧻(roll of paper) can represent “paper hands” which encourages other investors to sell (giving in) during periods of high price volatility. Like the “moon face,” these emojis could give investors the impression that a stock is either “going to the moon” or crashing back to Earth.

Not all courts, however, accept that a claimed common meaning for emojis changes a statement’s meaning. For example, in the Genius Brands securities litigation, one of the alleged misstatements involved the CEO’s post on social media responding to a rumor that Shaquille O’Neal would become a prominent investor in the company. The CEO responded, “Keep watching [🎆🎆🎆 (fireworks)] I can’t discuss nondisclosed material events until they happen.” The court ruled that the CEO’s response wasn’t misleading and simply indicated that he was unable to confirm the rumor.

Emojis in Insider Trading

In the context of insider trading prosecutions, emojis can be a goldmine for the government, especially when defendants attempt to conceal their scheme using emojis as code for tipping and other illicit activity. In the government’s insider trading case against a former FBI trainee, the defendant discovered the non-public merger plan between Merck and Pandion by secretly accessing a law firm associate’s work product. When tipping his friend about the pending deal, he used 🐼(panda) to refer to Pandion. Unsurprisingly, it didn’t take long for the government to decipher this “code.”

However, 🤑(money-mouth face) wasn’t enough to convict an alleged tippee for insider trading in the securities in Chegg Inc. The tippee’s close friend was a former vice president of Chegg, who allegedly shared non-public information about an upcoming earnings announcement. To prove the existence of a tip, the government offered into evidence the VP’s texting of 🤑(money-mouth face) to his friend after the announcement, allegedly as a congratulatory message for the trade implying that the VP had tipped his friend.

However, the judge overturned the jury’s conviction and granted the tippee’s post-trial motion for acquittal because the emoji wasn’t enough to prove beyond a reasonable doubt that the VP knew the tippee had traded.

Professionalism and Perception

The use of emojis could make the sender appear unprofessional or childish—hardly helpful when a defendant is trying to persuade a jury that they didn’t commit securities fraud.

For example, in the litigation over Elon Musk’s acquisition of Twitter, the plaintiffs included Musk’s tweet containing 💩(pile of poo) among the misstatements allegedly intended to depress the stock price of Twitter. Similarly, in the multi-party litigation involving the FTX collapse, the fact that management approved millions in lavish reimbursements with 👍(thumbs up) served not only as evidence of inadequate controls but reinforced a broader theme of unprofessionalism within the company.

Emojis as Business Records

Emojis can even be considered required business records and have been included in alleged SEC record-keeping violations. As part of an overall fraud case, the SEC accused a broker of failing to retain certain business-related off-channel communications. The SEC alleged that the firm’s CEO fostered a culture that encouraged widespread use of personal phones to text about business matters.

One message highlighted in the complaint was a simple 👍(thumbs up) sent by the CEO in response to a new hire’s recent performance. In their pending motion to dismiss, defendants didn’t hold back: “[The SEC] remarkably continues to allege that a text literally consisting entirely of a ‘thumbs-up emoji’ is a violation of federal securities law.”

Takeaways for Compliance Teams

Given the growing ubiquity of texts and emojis as a common mode of communication, compliance officers and in-house counsel should remind employees of the basics—all forms of electronic communications are discoverable in litigation and government investigations; casual messages (including emojis) can be misinterpreted or used out of context; and mistakes can lead to lawsuits, enforcement actions, or criminal charges.

To mitigate these risks, compliance training should reinforce some common-sense guidance:

• Employees should assume every message could be read in court.
• All messages should be kept professional and fact based.
• Avoid sarcasm, jokes, or informal language.

And as the oft repeated final reminder—please pause before hitting send and ask, “Would I be okay seeing this on the front page (or going viral on social media)?”

This article does not necessarily reflect the opinion of Bloomberg Industry Group, Inc., the publisher of Bloomberg Law, Bloomberg Tax, and Bloomberg Government, or its owners.

Author Information

Robert Pommer is a partner in Proskauer’s Litigation Department and a member of Proskauer’s Securities Enforcement, White Collar Defense & Investigations and Asset Management Litigation groups.

Josh Newville is a partner in Proskauer’s Litigation Department and a member of Proskauer’s Securities Litigation Group and the Asset Management Litigation team.

Nathaniel Perkoski contributed to this article.

Write for Us: Author Guidelines