On April 2, 2013, the Securities and Exchange Commission (SEC) issued guidance on the use of social media outlets such as Facebook and Twitter by public companies to disseminate material non-public information.
This guidance stems from an SEC investigation of statements made by Netflix CEO Reed Hastings on his personal Facebook page in July 2012. Mr. Hastings posted a message that Netflix’s monthly viewing exceeded 1 billion hours for the first time in the company’s history. Six months earlier, in January 2012, Netflix had announced streaming statistics in a press release and highlighted this statistic in a letter to shareholders that was filed with the SEC. In an earnings conference call subsequent to the press release and shareholder letter, Netflix stated that it would only update those metrics on a milestone basis.
Netflix did not file or furnish the information contained in Mr. Hastings’ July Facebook post with the SEC, nor did it issue a press release or otherwise publicly announce the milestone. At the time of his post, Mr. Hastings’ Facebook page had more than 200,000 subscribers, including equity research analysts, shareholders, reporters, and bloggers.
In the course of its investigation, the SEC considered the applicability of Regulation FD to Mr. Hastings’ post. The SEC also considered whether its previous guidance on the use of corporate websites as a method of public dissemination also applies to social media outlets.
Regulation FD provides that when an issuer discloses material non-public information to securities market professionals, shareholders, or certain other enumerated persons?including brokers, dealers, persons associated with brokers or dealers, investment advisers, institutional investment managers, and investment companies?it must simultaneously (or promptly thereafter if the disclosure was not intentional) disclose the information in a manner that is designed to provide broad, non-exclusionary distribution of the information to the public.
In 2008, the SEC issued guidance on the use of corporate websites as a means of disseminating information. This guidance clarified that corporate websites may be an effective means of public disclosure if the issuer has made investors, the market, and the media aware of the channels of distribution it expects to use.
In its April 2013 guidance, the SEC stressed the importance of considering Regulation FD requirements when making communications through social media platforms. So long as one person that receives the information is an enumerated person under Regulation FD, the selective disclosure rules apply. Furthermore, broad disclosure to both enumerated and non-enumerated persons is not sufficient to comply with Regulation FD if the method of distribution does not provide non-exclusionary distribution of the information.
Recognizing the proliferation and value of social media platforms such as Facebook and Twitter, the SEC examined the applicability of its 2008 guidance and concluded that social media may be a recognized channel of distribution for Regulation FD purposes. The determining factor, however, remains whether the market has been notified as to which forms of communication the issuer intends to use to disseminate material non-public information.
While the SEC chose not to pursue an enforcement action against Netflix or Mr. Hastings, the just-released guidance provides all public companies with a useful test for Regulation FD compliance. If a public company intends to use social media as a channel of corporate disclosure, it should identify the specific social media channels on its website and provide information on the steps that investors or the market need to take to receive those disclosures. In addition, during the transition period to using social media as a distribution channel for Regulation FD purposes, cross-posting the information directly to the corporate site is recommended.