On July 3, 2012, the CEO of Netflix, Inc., Reed Hastings, used his personal Facebook account to announce that Netflix had reached a milestone, streaming over one billion hours of content in one month for the first time. Subsequent Netflix communications, including current and periodic reports, did not mention this information, which prompted the SEC to investigate whether the Facebook post had violated Reg. FD. After deciding that the SEC’s policy towards the use of social media for Reg. FD disclosures was unclear, the SEC found it was in the public interest to issue a report on its investigation in order to give issuers guidance on using social media to disclose information to investors. The report was released earlier this week.
Despite the vast amount of followers Hastings has on Facebook, including investors, reporters research analysts and registered broker-dealers, the SEC was concerned that Netflix had never before used Facebook to disseminate investor information and had previously said that it did not use Facebook to get material information to investors. The SEC thought that the personal Facebook account of an issuer’s employee was not a medium that investors would assume to be a method of disseminating company information.
Reg. FD requires that if an issuer makes a disclosure to certain individuals defined in the regulation, that information should become generally available to the public in a specified time thereafter. Reg. FD is satisfied if the disclosure is transmitted in a way that reasonably provides widespread dissemination of the information to the public. In 2008, the SEC issued guidance on the use of company web sites, blogs and RSS feeds for making Reg. FD compliant disclosures. In this guidance, the SEC explained that there was no one-size-fits-all approach to Reg. FD disclosure, but that issuers must exercise caution when deviating from their normal methods of making disclosures. In determining whether the use of a particular method is sufficient for the purpose of Reg. FD, the SEC will determine if it was a reasonable method in light of investors’ expectations of how information would be provided and the steps an issuer has made to alert shareholders that information will be available using the medium.
In updating the 2008 guidance, the SEC explained that when issuers use new forms of media, the steps taken to alert market participants of the ways information will be transmitted and whether these media are fair and efficient methods of disclosure will be important in determining whether the disclosure requirements of Reg. FD have been met. The SEC encourages flexibility in the application of Reg. FD and the use of new technologies to maintain an active dialogue with investors. However, in doing so, issuers must ensure they get information out to all investors on a fair and equal basis.
As a best practice, issuers should consider disclosing the social media platform(s), if any, they intend to use to disseminate information to investors in a Form 8-K. Also, if an issuer does decides to use social media to disclose information to investors, the issuer needs to be consistent in the type and timing of its disclosures.