Since the announcement of the investigation by the SEC of the CEO of Netflix, Inc. for a July 2012 Facebook post celebrating a company milestone, there has been considerable uncertainty as to whether companies can use social media outlets, like Facebook and Twitter, to communicate with investors without violating Regulation Fair Disclosure (“Regulation FD”). On April 2, 2013, the SEC addressed this uncertainty by issuing a Report of Investigation (the “Report”) in which it clarified the rules applicable to companies releasing information to the public through social media. The Report indicates that the SEC is amenable to the increased use of social media outlets by companies while also reinforcing the applicability of Regulation FD to any such disclosures.
Regulation FD contains the federal securities regulations requiring public companies to disclose material, non-public information to investors in a manner reasonably designed to achieve effective broad and non-exclusionary distribution to the public before providing such information to shareholder and securities professionals. Regulation FD is meant to prevent shareholders and securities professionals from having an advantage as a result of early access to material, non-public information. The SEC previously released guidance permitting companies to make disclosures of material, non-public information to the public through their company websites under specified circumstances. The Report carries this principle one step further by applying the 2008 guidance for disclosures on company websites to social media disclosures.
Companies considering social media disclosures should be mindful of two important requirements. First, before disclosing material, non-public information through social media outlets, companies must ensure that the social media outlet will be a recognized channel of distribution to investors. This is a fact-specific inquiry, but may be satisfied in many circumstances by advising investors on the company website ahead of time of the intention to release such information using social media. Second, companies must ensure that information is distributed in a manner reasonably designed to achieve effective broad and non-exclusionary distribution to the public. This requirement focuses on the access that investors and the public have to the information released. In circumstances where the public does not have equal access to the information being released as a result of the characteristics or settings of a social media outlet, a company will likely fail to satisfy Regulation FD.
Companies considering expanding their use of social media as an avenue of communication with investors should review their existing social media policies in light of the procedures that need to be followed and the type of medium that may be used for dissemination of information. They should also make sure their website makes reference to any additional authorized channels. Breaches of Regulation FD can lead to expensive and time consuming legal or administrative actions. Haynes and Boone regularly counsels clients on the applicability of Regulation FD to releases of public information through a variety of channels.
Find additional information and read the Report of Investigation here.