Recently, the SEC said that companies can use Twitter, Facebook and other social media sites to release information to investors if certain requirements are met. The guidance from the SEC came in a report of its investigation of Netflix and its CEO, Reed Hastings. In June 2012, Mr. Hastings posted on his personal Facebook page that Netflix had passed one billion hours of monthly online viewing for the first time. Netflix never announced this information in an SEC filing or press release, causing the SEC to investigate whether Regulation Fair Disclosure (Reg FD) was violated.
Under Reg FD, a company must disclose material, nonpublic information in a manner that is broad and non-exclusionary to the public. Reg FD was designed to protect investors; in theory it guards against companies disseminating information to one group of investors before another. For years the SEC permitted companies to disseminate information via their corporate website in addition to the SEC’s public filing system, EDGAR. But times have changed. Investors can now get information “pushed” to them via social media and they no longer have to continually check for company filings to learn of market-moving events. It was only a matter of time before the SEC was forced to recognize the power and reach of social media platforms in distributing information.
It now seems that the SEC is willing to embrace social media outlets. After investigating Netflix and Mr. Hastings for several months, the SEC closed the investigation and did not impose penalties for the Facebook post. Instead, the SEC issued a “report of investigation,” an enforcement tool used when it wants to issue broad guidance from a specific investigation. The report acknowledged that companies could treat social media as legitimate outlets for material disclosures. The catch is that companies must make clear which social media sites will serve as potential outlets for disclosures. This will give investors the chance to subscribe or join the appropriate sites. Understandably, some investors may initially struggle or be at a disadvantage when researching companies via social media, but by embracing social media, the SEC is allowing companies to reach a wider pool of investors, which should benefit casual investors.
Perhaps the SEC is following its own guidance. It tweeted this announcement.