The Securities and Exchange Commission has issued a report clarifying the use of corporate disclosure on social media outlets, like Facebook and Twitter, by public companies.
On April 2, the SEC provided guidance to issuers that the announcement by a company of corporate information via social media sites or networks will be compliant with Regulation FD, provided the company has previously made stockholders and investors aware of the specific social media outlets that will be used to release such information.i
In recognition of the proliferation of social media in today’s society and the increasing use by public companies of social networks to interact with customers, employees, shareholders and the market at large, the SEC’s Report expanded its 2008 interpretative guidance relating to the use of company websites as a Regulation FD acceptable channel for information distribution (the 2008 Guidance)ii and applies that framework to today’s social media outlets.
On July 3, 2012, the founder and chief executive officer of Netflix, Inc. posted a statement on his personal Facebook page that Netflix monthly viewing had exceeded one billion hours of streaming content during the prior month. Although the company had previously provided streaming hour metrics in some of its press releases, Netflix did not disclose the content of the Facebook post in a press release or in a posting on the company’s website or furnish such information in a Form 8-K. The company did, however, issue a press release later in the day announcing the date of its second quarter 2012 earnings release, without mention of the Facebook post or the metrics contained therein.
Netflix had not previously released any material nonpublic information on Facebook or otherwise made investors aware that Facebook (or social media in general) would be used by the company to release corporate information. At the time of the Facebook post, Netflix’s common stock was trading at US$70.45 and then steadily climbed, closing at US$81.72 on the following trading day. The content of the July 3, 2012 Facebook post slowly reached the market as the post was picked up in various technology-focused blogs and by other news outlets over the next several hours. As a result of these factors, the SEC opened an investigation into whether the July 3, 2012 Facebook post by the Netflix CEO resulted in selective disclosure for Regulation FD purposes.
Regulation FD prohibits companies from intentionally disclosing material nonpublic information to specified types of securities market professionals and security holders unless the company simultaneously discloses the information publicly. In addition, if a company non-intentionally discloses material nonpublic information to persons covered by the regulation, Regulation FD requires that the company must publicly disclose the information promptly. Regulation FD was created to ensure that all investors and stockholders have access to the same material information at any given time.
Reacting to the expanding use of website postings as a means to communicate with stockholders, the SEC’s 2008 Guidance provided public companies with a flexible framework for determining Regulation FD-compliant information dissemination via company websites. The 2008 Guidance identified various factors for consideration when determining whether a website could be considered a Regulation FD-compliant channel for corporate information distribution. In particular, the 2008 Guidance focused on whether the company had previously announced that it would use its website to make public announcements and post corporate information.
Expanding the 2008 Guidance
In the Report, the SEC confirmed that the 2008 Guidance was in response to the growing use of websites by companies as a means to post corporate information, but “with the expectation of ‘continued technological advances,’ the 2008 Guidance was designed to be flexible and adaptive.”iii As a result, the Report expands the 2008 Guidance and makes it a framework for applying Regulation FD to the use of today’s social media.
The Report provides guidance as to how public companies should, and how the SEC will, review corporate communications distributed through social media. Determining whether a company communication is Regulation FD compliant will always be a facts-and-circumstances analysis, but the Report confirms that (i) all corporate communications made via social media require careful Regulation FD analysis similar to communications made through traditional channels; and (ii) companies must specifically identify which social media outlets will be used by the company prior to their use, in order for those channels to be considered Regulation FD compliant information channels.
Social media is here to stay. A company intending to use social media to distribute material non-public information should make sure to provide specific notice that the company plans to regularly and routinely use specific social media outlets as channels for distribution of corporate information. Such notice may be included in the company’s press releases, website postings or SEC filings.
Companies may also consider providing links to their social media channels on company websites in order to ensure that the market is aware of the company’s use of these specific social media outlets for the distribution of corporate information.
An issuer should treat its social media commentary in a manner consistent with its more traditional disclosure methods. Given the evolving nature of social media, companies should consult with counsel to ensure that company disclosure policies and social media use are compliant with Regulation FD, the federal securities laws and the rules and regulations of the various national securities exchanges.
For more information about the SEC Report and its impact on your business, please contact David Schwartz or Andrew Gilbert.
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i Report of Investigation Pursuant to Section 21(a) of the Securities Exchange Act of 1934: Netflix, Inc., and Reed Hastings, Release No. 69279 (April 2, 2013) (the Report).
ii Commission Guidance on the Use of Company Web Sites, Release No. 34-58288 (August 7, 2008).