The SEC issued a report stating that as long as companies alert investors about which social media will be used to disseminate such information, such announcements can meet the fair disclosure regulation (Regulation FD), which requires companies to distribute material information in a manner reasonably designed to get that information out to the general public broadly and non-exclusively. The intention is to ensure that all investors will be able to gain access to material information at the same time.
Regulation FD applies to social media and other emerging means of communication used by public companies the same way it applies to company websites, the SEC’s report found. The SEC issued guidance in 2008 clarifying that websites can disseminate information to investors if they’ve been made aware that’s where to look for it. The most recent report clarifies that company communications made through social media channels could constitute selective disclosures and, therefore, require careful Regulation FD analysis.
The SEC’s report was launched after a post by Reed Hastings, chief executive of Netflix, 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. A subsequent company press release later that day did not include this information. 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.
Netflix’s stock price had begun rising before the posting and increased, from $70.45 at the time of the Facebook post, to $81.72 at the close of the following trading day.
The SEC did not initiate an enforcement action or allege wrongdoing by Hastings or Netflix. Recognizing that there has been market uncertainty about the application of Regulation FD to social media, the SEC issued the report of investigation pursuant to Section 21(a) of the Securities Exchange Act of 1934.
“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.”
“Companies should review the Commission’s existing guidance,” said Lona Nallengara, acting director of the SEC’s Division of Corporation Finance. “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.” (See “SEC Guidance: Tweet This, Not That.”)
The report of investigation explains that although every case must be evaluated on its own facts, disclosure of material, nonpublic information on the personal social media site of an individual corporate officer — 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. Personal social media sites of individuals employed by a public company would not ordinarily be assumed to be channels through which the company would disclose material corporate information.