When the CEO of Netflix posted new company metrics on his personal Facebook page last summer, everyone inside and outside the social world took notice, including the Securities and Exchange Commission (SEC), which began an investigation into potential compliance issues stemming from his posting. Keeping pace with the technological era of social media, however, the SEC has now issued a report clarifying that public companies can use social media like Facebook and Twitter to announce important information in certain circumstances as long as they have alerted investors that they will use these social media sites as channels for disseminating such information.
Regulation FD prohibits the selective disclosure of material nonpublic information before it is made available to the general public through a recognized channel of distribution. The purpose behind Regulation FD is to make sure that all investors have the ability to access material information at the same time. In 2008, the SEC issued an interpretive release recognizing that, under appropriate circumstances, a company’s web site can satisfy the public dissemination requirement of Regulation FD, but, as evidenced by the Netflix incident, a clear picture had not developed regarding the application of Regulation FD to social media and other emerging modes of communication.
Public companies are increasingly using social media to communicate with their shareholders and the general public. In its new report, the SEC clarifies that disclosure through social media channels requires the same careful Regulation FD analysis as disclosure through traditional channels, and that the same principles outlined in the SEC’s 2008 interpretive release regarding web site disclosure apply equally to disclosures made through social media channels.
Regardless of the medium used, compliance with Regulation FD requires disclosure reasonably designed to provide broad, non-exclusionary distribution of the information to the public. As with corporate web sites, whether a Facebook page or Twitter account is a recognized channel of distribution will depend on the steps a company has taken to alert investors to its use of these social media channels for disclosing material news, its disclosure practices in this regard, and the investors’ use of such social media channels. The SEC’s 2008 interpretive release provided a non-exhaustive list of factors to consider in evaluating whether a web site (and now, by extension, a social media channel) meets these standards. For instance, the SEC encourages companies to include their corporate web site address in SEC filings and press releases and to inform the public that they routinely post material news on that web site. Likewise, companies should identify for investors the specific social media channels that will be used for disseminating material news so that investors know where to look for such information and what they need to do to obtain such information (such as registering with, or reviewing, the particular channel).
These are just a few of the examples provided by the SEC, but they are by no means solely determinative or exhaustive. Companies should keep in mind that compliance with Regulation FD depends to a high degree on all the facts and circumstances of each particular situation, and should consult with counsel on the various other factors that may help ensure compliance. In some cases, the analysis may not provide a sufficient level of comfort to forego the more traditional dissemination of material news through press releases and SEC filings. Companies also should recognize that liability exposure under antifraud provisions exists equally for disclosures through social media channels. Accordingly, corporate policies and procedures should be revised or developed to address the use of social media as a method of disseminating material news.