Social Media Acceptable to SEC

The Securities and Exchange Commission (“SEC”) issued a press release  on Tuesday April 2, 2013 indicating that public registrants are allowed to use social media as a form of communication with the investing public as long as investors are alerted.  The release made clear that Regulation Fair Disclosure (“Reg. FD”) applies to social media and other emerging means of communication used by the investing public the same way it applies to company websites.  Reg. FD is a regulation that was issued by the SEC in 2000 as a way to ensure that all public companies disclose material information to all investors at the same time.  The goal of Reg. FD was to change how companies communicated with investors by providing more transparency and more timely and frequent communications.  The most common form of this is company-issued press releases.  The press releases are generally discussed during shareholder conference calls and posted to company websites.

The primary reason for the SEC press release was the Commission’s Report of Investigation (“investigation”) stemming from a Facebook post made by Netflix’s CEO on July 3, 2012. The post indicated that Netflix’s monthly online viewing had exceeded one billion hours.  This exclusive information was not shared with investors in a press release or 8K filing prior to the initial Facebook post. The stock price of Netflix had posted gains of approximately 15% from the time the Facebook post occurred to the following trade day.  It is noted that neither Netflix nor its CEO had previously used Facebook as a means of communicating company metrics.

The SEC investigation did not initiate an enforcement action against the Netflix or its CEO due to the uncertainty concerning how Reg. FD could be applied since the explosion of social media communications.  The current Reg. FD guidance does not require the use of a particular communication method, nor does it have a one-size-fits-all standard for disclosure.  The best practice for its application is to be consistent in its application, and any deviation from that consistent method could be scrutinized. In the investigation, the SEC indicated that they encourage and support companies to seek out new forms of communication.  They also wanted to clarify the following:

  • Issuer communications through social media channels require careful Reg. FD analysis comparable to communications through more traditional channels.
  • The principles outlined in the 2008 Guidance – and specifically the concept that the investing public should be alerted to the channels of distribution a company will use to disseminate material information – apply with equal force to corporate disclosures made through social media channels.

It is likely that the SEC will not publish an exhaustive list of acceptable means of communication since the public’s acceptable means of communications is constantly evolving.  Each case should be judged on its own merits as to whether or not non-public information on personal social media sites qualifies as a method that is “reasonably designed to provide broad, non-exclusionary distribution of the information to the public,” as defined by Reg. FD. 

SEC Trends & Developments - Spring 2013 - Issue 

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