On April 2, 2013, the SEC issued a report that makes clear that disclosure of material, non-public information by companies pursuant to social media outlets such as Facebook and Twitter can be permissible under Regulation FD so long as investors are alerted as to which social media a company intends to use. As discussed below, the key to using social media as a primary disclosure tool will be providing advance notice to investors.
When the Securities and Exchange Commission adopted Regulation Fair Disclosure (“Reg FD”) in 2000, it was meant to combat selective disclosure by public companies to analysts and institutional investors, leading to so-called “whisper numbers” regarding earnings. Social media had yet to emerge as mainstream vehicles and Facebook and Twitter were not around.
From 2000 until 2008, press releases and Form 8-Ks were the only way to ensure compliance with Reg FD. In August 2008, recognizing the prevalence of corporate websites, the SEC issued guidance permitting disclosure on a company website under certain circumstances (see SEC Release No. 34-58288 (August 7, 2008)). The SEC has now moved in surprisingly quick fashion to accept social media as a permitted outlet for disclosure.
The impetus for the new disclosure guidance began in July 2012 when Netflix CEO Reed Hastings posted on Facebook that one billion hours of content were streamed by Netflix in June. This information was not provided in a press release or 8-K or otherwise publicly announced by Netflix. The SEC issued Wells Notices to both Hasting and Netflix indicating that enforcement action would be recommended based on a violation of Reg FD.
In addition to stating that the SEC would not pursue enforcement against Hastings or Netflix, the SEC report recognizes the proliferation of social media. The SEC report suggests providing disclosure on a company website as to the social media channels a company intends to use for the dissemination of material non-public information. The report contrasts personal social media sites of individuals (which is where Hastings made his posting) with corporate social media outlets and suggests that the use of personal social media sites for this purpose is a riskier proposition. The report states that “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. Without adequate notice that such a site may be used for this purpose, investors would not have an opportunity to access this information or, in some cases, would not know of that opportunity, at the same time as other investors.”
Because of the evolving use of social media, we think it prudent for public companies that have not conditioned investors to follow their disclosures via social media to continue to make material non-public disclosures in press releases and Form 8-Ks to ensure compliance with Reg FD. A company that wishes to use Facebook and Twitter for such purposes should provide sufficient advance notice of its intent to do so on its website and in press releases and continue to remind investors that it intends to make announcements of material non-public information using social media. We also recommend that individuals at companies that are responsible for Reg FD compliance coordinate with their investor relations department to determine which social media outlets the company will be using for disclosure and coordinate the timing of any announcements. IR departments should monitor traffic at the various social media outlets to determine whether the Company believes it has sufficiently established social media as a primary communications tool with investors. Given the relative ease of filing or furnishing a Form 8-K with the SEC, a company should continue to do so until the social media tool has been sufficiently established.
A copy of the SEC report can be found here.