The SEC has updated its 2008 guidance1 governing the disclosure of company information on corporate websites and blogs in compliance with Regulation FD to reflect the increasing popularity of social media. The SEC has confirmed that a public company may use social media outlets like Facebook and Twitter to make public announcements of material information in compliance with Regulation FD if investors have been alerted of the company’s intention to use those distribution channels.
This update to the 2008 guidance arose out of the SEC’s investigation into whether a Facebook post made in July 2012 by Netflix CEO Reed Hastings violated Regulation FD. On July 3, 2012, Hastings posted on his personal Facebook page that Netflix’s monthly online viewing exceeded one billion hours for the first time. Neither Hastings nor Netflix had previously reported Netflix’s performance metrics using Hastings’s Facebook page or alerted investors that Netflix would disclose information using Hastings’s Facebook page. Netflix did not report this information through a press release, a Form 8-K filing, or on its website. The SEC did not pursue an enforcement action against Netflix or Hastings, but decided to issue clarifying guidance with respect to the application of Regulation FD to company disclosures in the rapidly changing social media environment.2 The updated guidance confirms that a company may use social media channels to meet its public disclosure obligations under Regulation FD if the channels qualify as “recognized channels of distribution” for communicating with its investors.
Regulation FD prohibits public companies, or persons acting on their behalf, from selectively disclosing material, nonpublic information to certain securities professionals, or shareholders where it is reasonably foreseeable that they will trade on that information, before it is made available to the general public. A company makes a public disclosure for purposes of Regulation FD when it distributes the information “through a recognized channel of distribution.” Whether a communications outlet is a “recognized channel of distribution” is a fact-intensive inquiry that depends largely on the steps a company takes to make investors, the market, and the media aware that a company intends to distribute material information through a particular distribution channel.
The updated guidance makes clear that a company may announce material, nonpublic information using social media channels such as Facebook and Twitter without running afoul of Regulation FD’s prohibition against selective disclosure. A company must, however, engage in a fact-intensive analysis that examines rigorously the factors indicating whether a particular channel is a “recognized channel of distribution” for communicating with its investors. The steps a company takes prior to disclosure to alert investors and the market about the social media channels it intends to use and the types of information that may be disclosed are central factors in qualifying a particular social media outlet as a “recognized channel.” The SEC encourages companies to announce in their periodic reports, press releases and on corporate websites which social media channels they intend to use to distribute material nonpublic information to ensure compliance with Regulation FD.
The updated guidance also emphasizes that the fact-intensive analysis required by the 2008 guidance to ensure compliance with Regulation FD—which goes beyond the steps companies take to inform investors and the market about the communication channels they intend to use—applies equally to disclosures made using social media. Companies should refer to the 2008 guidance when contemplating the use of social media to disclose company information and be cautioned that informing investors prior to disclosure that the company intends to distribute information using social media may not be enough to ensure compliance with Regulation FD.
The SEC noted that, although each case must be evaluated on its particular facts and circumstances, disclosures on the personal social media site of a corporate officer in the absence of advance notice to investors that the site would be used for this purpose is unlikely to qualify as an acceptable method of public disclosure.
In light of this updated guidance, companies using social media to disclose company information should:
- develop a comprehensive social media policy detailing which social media outlets may be used for communication and what types of information may be disclosed;
- announce in periodic reports, in press releases and on corporate websites which social media channels they may use to disclose material nonpublic information and what types of information may be disclosed well in advance of such disclosure; and
- review with legal counsel the circumstances surrounding any potential disclosure of material, nonpublic information through social media to ensure compliance with Regulation FD.