- SEC Approves Facebook for Company Announcements
- April 11, 2013 | Author: Katharine F. Musso
- Law Firm: Jones Walker LLP - Birmingham Office
The Securities and Exchange Commission ("SEC") issued a report on April 2, 2013, clarifying that publicly reporting companies can use social media like Facebook and Twitter to announce material information in compliance with Regulation Fair Disclosure ("Regulation FD") provided investors have been alerted about which social media will be used to disseminate the information.
Regulation FD and Section 13(a) of the Securities Exchange Act of 1934 prohibit public companies from selectively disclosing material, nonpublic information to securities professionals or shareholders when it is reasonably foreseeable they will trade on that information, before it is made available to the general public. The SEC had previously issued in 2008 Guidance on the Use of Company Web Sites which explained that for purposes of complying with Regulation FD, a company makes public disclosure when it distributes information "through a recognized channel of distribution."
The SEC's announcement stems from a report of investigation focused on a Facebook post made by Netflix CEO, Reed Hastings, stating that Netflix's monthly online viewing had exceeded one billion hours for the first time. Netflix did not report this information through a press release or 8-K filing, and, in fact, a subsequent company press release later that day did not include this information. Neither Hastings nor Netflix had previously used his Facebook page to announce company news, nor had they taken steps to alert investors that Hastings' personal Facebook page might be used as a medium for distributing information about Netflix.
The SEC stated "[a]lthough every case must be evaluated on its own facts, 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 a method 'reasonably designed to provide broad, non-exclusionary distribution of the information to the public' within the meaning of Regulation FD."
In its press release the SEC said it does not intend to inhibit corporate communication through social media channels. Instead, the SEC's takeaway was to remind issuers that Regulation FD disclosures, even if made through evolving social media channels, must still be analyzed for compliance with Regulation FD. It also confirmed that the 2008 Guidance, though primarily focused on the use of web sites, is equally applicable to current and evolving social media, including Facebook and Twitter.