The SEC’s report of investigation confirms that 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 issued
guidance in 2008 clarifying that websites can serve as an effective means
for disseminating information to investors if they’ve been made aware that’s
where to look for it. Today’s report clarifies that company communications
made through social media channels could constitute selective disclosures
and, therefore, require 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.”
Regulation FD requires companies to distribute material information in a
manner reasonably designed to get that information out to the general public
broadly and non-exclusively. It is intended to ensure that all investors
have the ability to gain access to material information at the same time.
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 report of investigation stems from an inquiry the Division of
Enforcement launched 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
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 Netflix. 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.
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.
The SEC’s inquiry was conducted by Cameron P. Hoffman, Michael E. Liftik,
and Assistant Regional Director Cary S. Robnett in the San Francisco
Regional Office.
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http://www.sec.gov/news/press/2013/2013-51.htm
