The Securities and Exchange Commission (“SEC”) recently released a report that answers important questions about how companies can release material information through social media without violating Regulation FD.
Regulation FD prohibits selective disclosure of material nonpublic information to certain persons, including shareholders and securities professionals, before widespread disclosure to the public. The SEC released a report in 2008 that discussed the application of Regulation FD to disclosures through company websites and other evolving methods of communication. The 2008 release, though, created a problem for companies by requiring that disclosures be made only through a “recognized channel of distribution,” without explaining clearly how a new disclosure method could satisfy that requirement.
The new report acknowledges widespread confusion over how to comply with Regulation FD. In answer to the question whether social media platforms can be “recognized channels of distribution,” the report: (1) explains that the 2008 release was intended to be “flexible and adaptive” to new technologies, so it avoided rigid tests to evaluate all future means of disclosure, and (2) indicates that the focus should be on whether the company has given the public sufficient notice that it intends to use a particular means to disclose material information.
Some commentators still see risk in making disclosures through social media, but the SEC, through both the tone and content of the new report, has told companies that they should be able to disseminate material information through social media. The key is to alert the market to how future disclosures will be made.
What to do:
If a company would like to make disclosures of material nonpublic information through social media platforms, it should:
  • Provide clear advance notice to the market on the company website, in periodic SEC filings and in press releases of the specific outlets it intends to use and the types of information it intends to disclose,
  • At least initially, continue using the company’s current methods of disclosure along with disclosure through social media,
  • Decide whether social media will eventually be the exclusive means of communication for certain types of information, or will be used in conjunction with other means of communication for certain types of information, and
  • Develop (or update) a disclosure or social media policy for directors, officers and employees that explains who may use company-sponsored social media to disclose company information and what information may be disclosed. Then make sure covered persons understand the policy.
Social media may not comfortably accommodate all required disclosures. When additional cautionary language or reconciliation of non-GAAP financial information is necessary, companies may choose to introduce a topic through a company Twitter or Facebook site, but link to more complete disclosure on the company website or in a press release.