The use of social media is a growing concern with new exemptions that allow issuers to engage in general solicitation and advertising of their unregistered offerings. The Securities and Exchange Commission has made its position on the use of social media sites like Facebook and Twitter by public companies clear. The SEC has stated that social media may be used to report key information in compliance with Regulation Fair Disclosure (Regulation FD), as long as investors are alerted to the specific social media that will be used to disseminate such information. Regulation FD requires that SEC reporting companies disseminate material information in a manner reasonably designed to get the information out to the general public broadly and non-exclusively.
It is intended to ensure that all public company investors gain access to material information at the same time. SEC’s new report finds that Regulation FD applies to social media and other emerging means of communication may be used by public companies in the same way they use company websites.
In 2008, the agency issued a report confirming that public company websites can appropriately be used to communicate important information to the investing public. The April 2, 2013 report, while adding some social media sites to the list of permissible venues, notes that public company disclosure made through social media may in some cases constitute selective disclosure and, therefore, requires careful regulation FD analysis. “One set of shareholders should not be able to get a jump on other shareholders just because the company is selectively disclosing important information,” said George Canellos, Acting Director of the SEC’s Division of Enforcement. “Most social media are perfectly suitable methods for communicating with investors, but not if the access is restricted or if investors don’t know that’s where they need to turn to get the latest news.”
Lona Nallengara, Acting Director of the SEC’s Division of Corporation Finance, added, “Companies should review the Commission’s existing guidance — it is flexible enough to address questions that arise for companies that choose to communicate through social media, and the guidance does so in a straightforward manner.”
The SEC’s recent report stems from an SEC Division of Enforcement inquiry into a post by Netflix CEO Reed Hastings on his personal Facebook page stating that Netflix’s monthly online viewing had exceeded one billion hours for the first time. Netflix did not report this information to investors through a press release or Form 8-K filing, and a company press release issued later in the day did not include the information posted on Facebook. Neither Hastings nor Netflix had previously used his Facebook page to announce company metrics, and they had never before taken steps to alert investors that Hastings’ personal Facebook page might be used as a medium for communicating information about the company. The SEC chose not to initiate an enforcement action or allege wrongdoing by Hastings or Netflix because of general uncertainty about the application of Regulation FD to social media.
The SEC advises that each instance must be evaluated on its own facts, but it seems clear they do not feel the disclosure of material, nonpublic information on a corporate officer’s personal social media website page without advance notice to investors that the site may be used for this purpose — is unlikely to qualify as an acceptable method of disclosure under the securities laws. The agency’s view is that the personal social media sites of individuals employed by a public company would not ordinarily be considered appropriate channels for the transmission of material corporate information.
The SEC’s report can be viewed here: SEC’s Report of Investigation
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