[ by Melanie Gretchen and Howard Haykin ]

The SEC announced on Wednesday that it is giving permission to companies to use social media for the purpose of disseminating information to investors - so long as the information is provided in compliance with Regulation Fair Disclosure (Regulation FD).   The SEC made it clear, however, that while social media channels have the potential to be perfectly suitable methods for communicating with investors, that can only happen if investors know where to look. 

The SEC acknowledges the similarities between social media channels and companies' own websites, when it comes to disseminating information to investors.  The SEC further noted that the report issued on Thursday clarifies that company communications made through social media channels could constitute selective disclosures and, therefore, require careful Regulation FD analysis.  

Regulation FD Requirements.   The Regulation requires that Companies distribute material information in a manner reasonably designed to get that information out to the general public broadly and non-exclusively.  It is intended to ensure that all investors have the ability to gain access to material information at the same time.  

Lona Nallengara, Acting Director of the SEC Division of Corporation Finance adds:  “Companies should review the Commission’s existing guidance - it is flexible enough to address questions that arise for companies that choose to communicate through social media, and the guidance does so in a straightforward manner.”  The SEC issued initial guidance in 2008, applicable at the time to company websites, that mandates that any means used by companies to disseminate information that's critical to investors must permit equal access for all investors - both institutional and individuals. 

SEC Investigation Into Disclosures Made by Netflix CEO.   The SEC's report of investigation that provides today's newest internet guidance began when the Agency looked into statements posted by Netflix CEO Reed Hastings on his personal Facebook page.  Mr. Hastings stated that Netflix’s monthly online viewing had exceeded 1 billion hours for the first time.  That statement raised red flags - ie., that it was a potential violation of Regulation FD - because the CEO was:

• not reporting this information to investors through a press release or Form 8-K filing
• not following precedent, never before having used his own or Netflix's Facebook page to announce company metrics, and they had never before taken steps to alert investors that Hastings’ personal Facebook page might be used as a medium for communicating information about Netflix
• not having alerting investors that Mr. Hastings’ personal Facebook page might be used as a medium for communicating information about Netflix

The SEC chose not to initiate an enforcement action or to allege wrongdoing by Mr. Hastings or Netflix.  However, the SEC review revealed that te Netflix disclosures on Facebook may have been subject to the terms and conditions of Regulation FD - and, as a result, those terms and conditions would be applicable to social media, in general.  Upon completing its review, the SEC issued the report of investigation pursuant to Section 21(a) of the Securities Exchange Act of 1934.  Going forward, disclosure of material, nonpublic information on the personal social media site of an individual corporate officer — without advance notice to investors that the site may be used for this purpose — is unlikely to qualify as an acceptable method of disclosure under the securities laws.

For further details, go to the [SEC Press Release 2013-51, 4/2/13].

To contact Melanie Gretchen: melanie@compliance-insights.com.