On April 2, the SEC issued guidance that permits companies to use Facebook and Twitter to communicate company announcements, without the risk of violating the SEC’s Regulation Fair Disclosure provision (“Regulation FD”), and stopped its investigation of Netflix “because rules around using social media for company disclosures had been unclear.”
When Netflix CEO Reed Hastings turned to Facebook in July 2012 to announce that Netflix subscribers had watched more than one billion hours of video in a single month and potentially caused Netflix stock rise that day, the SEC took it very seriously. The Commission opened an investigation seeking “a cease and desist or injunction against the subscription video company and its CEO” for an inappropriate public disclosure of insider information. Disputes followed, given the murky definition of “public,” since nothing is pursued as more public than social media in today’s world. While technically Netflix never issued an official press release with the information, Hastings defended his use of Facebook: “We think posting to over 200,000 people is very public, especially because many of my subscribers are reporters and bloggers.”
In the SEC report, George Canellos, acting director of the SEC’s enforcement division, said, “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.”
Per its definition, “Regulation FD prohibits US public companies or persons acting on their behalf from selectively disclosing material, nonpublic information to securities professionals or investors when it is reasonably foreseeable that such investors will trade on the basis of the information. Regulation FD requires that when such information is disclosed, it must be filed with the SEC on a Form 8-K or disclosed through a channel that provides for broad and non-exclusionary public dissemination, such as a widely distributed press release.”
While the issue appears to be resolved, and SEC seems to be on its way to embracing social media and new technologies, some still have concerns regarding social communications because many investors (especially those over 50) do not have Facebook or Twitter accounts. A valid argument, but will it stand? Technology revolution does not wait and those who postpone embracing it certainly fall behind (and not just in reference to social media).
As far as social communications go, “the next time material information is disclosed on an executive’s Facebook page without the company alerting all shareholders to look there for information, the matter will likely be met with a SEC lawsuit”, says Gene Goldman, a partner at law firm McDermott Will & Emery LLP. Social media announcements are now officially allowed by SEC, but communication with investors and social media training for employees (executives included) on the latest social media regulations is essential to maintaining your compliance standards.