SEC Clarifies Social Media and Regulation FD Compliance
The U.S. Securities and Exchange Commission (SEC) has recently issued a report announcing that publicly-owned companies may use social media outlets to announce material, non-public information while complying with Regulation Fair Disclosure (Regulation FD). To ensure compliance, companies must ensure they give notice as to which social media channels they will use to release this information.
The SEC enacted Regulation FD in 2000 to prohibit selective disclosure of material information. The linchpin of Regulation FD is that publicly-owned companies must disseminate material, non-public information in a way “reasonably designed to provide broad, non-exclusionary distribution of the information to the public.” In the past, most companies complied with Regulation FD by releasing information through broad channels such as press releases and quarterly earnings calls. Well, the times they are a-changin’.
As the internet continues to extend its reach into all aspects of day-to-day life, companies are increasingly using alternative means to communicate with the public in new ways. This trend has even reached into public disclosures regulated by the SEC. In 2008, the SEC released “Commission Guidance on the Use of Company Web Sites.” The purpose of this guidance was to clarify how companies may use their websites to release material, non-public information. While the 2008 guidance was primarily concerned with information promulgated via company websites, the SEC recognized the speed with which technology is evolving and allowed for flexibility in the future. It is important to note that the purpose of the 2008 guidance was to encourage development of company websites as a means for dissemination of investor information, not to limit alternative forms of disclosure.
In July 2012, a post on Netflix CEO Reed Hastings’s personal Facebook page prompted an SEC investigation and gave the Commission a chance to clarify its stance on using social media as a form of disclosure. Mr. Hastings used his personal Facebook page to announce that Netflix had streamed over 1 billion hours of content in the month of June, a milestone for the company. The day after Hastings’s post, Netflix’s stock rose over 15%. Neither Netflix nor Hastings had previously used Hastings’s Facebook page to release this type of information, and the company did not file an 8-K form or issue a press release through its normal distribution channels. Finally, the company failed to alert its investors that it would use Hastings’s Facebook page as a means for disclosing this type of information.
On April 2, 2013, the SEC released its report on the Hastings matter (http://www.sec.gov/litigation/investreport/34-69279.pdf) to clarify that publicly-owned companies can use social media while still complying with Regulation FD. The report emphasizes notice as an important factor in whether companies achieve compliance. When disclosing material, non-public information, companies should inform investors and the markets of the specific social media sites they intend to use when disclosing this type of information. However, companies must ensure that when they inform investors and the markets, they are doing so through a recognized distribution channel. Ultimately, the SEC stated that social media may be an appropriate medium for disclosing this type of information, but companies should carefully ensure they are complying with Regulation FD.
Who Is Doing It?
Following the issuance of the Hastings Report, several companies have announced that they may be using various social media sites for disclosing information. Predictably, Netflix announced that it might use both Mr. Hastings’s and the company’s Facebook pages for disseminating this type of information. Additionally, AutoNation, Zynga and DLH Holdings have all filed 8-Ks announcing that they will use various social media channels to release investor information. Even national office supply giant Staples has announced that it will use its Facebook and Twitter pages to release investor information. Finally, Zillow, a large online real estate database, has announced it will be the first company to field questions via Twitter during earnings calls. Clearly, publicly-owned companies are moving towards using social media as a way to communicate company information with investors, the public and the market.
What Can You Do?
When analyzing compliance with Regulation FD, publicly-owned companies must do two things. First, they must determine if the information they wish to disclose is material and non-public. If it is, the issuers must determine whether the companies released the information in a manner reasonably designed to provide broad, non-exclusionary distribution of the information to the public.
There are several important things to keep in mind when analyzing disclosure under Regulation FD. First and foremost, companies should identify the specific channels they will use to release information. Simply stating that the companies may use social media in general to announce information may be insufficient to satisfy Regulation FD. Because the SEC expects it to be simple for investors to find this information, these channels should be free and open to the public. In an attempt to facilitate ease of access, companies should provide direct links and URLS to the selected social media outlets.
When announcing plans to use social media, or any new forum for that matter, it is important to use a “recognized channel of distribution.” A recognized channel of distribution is essentially a channel that a company has used in the past to release material, non-public information. For instance, when Staples announced it would be using social media to release investor information, it provided the specific social media sites in an 8-K release filed with the SEC. Using these types of channels is critical to the fair and efficient disclosure of information.
While there are still significant Regulation FD requirements to think about when using social media to disclose information, the Hastings Report clearly gives the green light for publicly-owned companies to use social media as a means to accomplish this. Given the rapid proliferation of social media into every aspect of daily life, companies should cast an eye towards using new technology to communicate with the public. When deciding how to use social media for communications, companies must ensure they providing broad notice of the channels they will use for material, non-public information.
Special thanks to Axley Summer Law Clerk Tom Dufek for his assistance with this article.
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