By Frank Byrt
In an April 2 press release, the Securities and Exchange Commission (SEC) said that companies may use social media outlets, such as Facebook and Twitter, to disclose key information and still be in compliance with Regulation Fair Disclosure (Regulation FD), so long as investors have been alerted about which social media will be used to disseminate that information.
"One set of shareholders should not be able to get a jump on other shareholders just because the company is selectively disclosing important information," said George Canellos, acting director of the SEC's Division of Enforcement, in the press release. "Most social media are perfectly suitable methods for communicating with investors, but not if the access is restricted or if investors don't know that's where they need to turn to get the latest news."
Regulation FD requires companies to distribute material information in a manner reasonably designed to get that information out to the general public broadly and nonexclusively. It's intended to ensure that all investors have the ability to gain access to material information at the same time, the SEC said.
The approval for the use of social media to disclose corporate information was prompted by the SEC's investigation of online media distributor Netflix after its CEO, Reed Hastings, used his personal Facebook page on July 3, 2012, to announce that Netflix had streamed 1 billion hours of content for the first time ever in the month of June.
That news, which was a 50 percent improvement in Netflix's customer streaming hours, helped push the price of a share of the company's stock from $70.45 at the time of Hastings' Facebook post to $81.72 at the close of the following trading day.
Neither Hastings nor Netflix had previously used Hastings's personal Facebook page to announce company metrics, the SEC said, and Netflix hadn't previously informed shareholders that Hastings's Facebook page would be used to disclose such information.
Ultimately, the SEC didn't pursue an enforcement action or allege wrongdoing by Hastings or Netflix, but its investigation found that neither Hastings nor Netflix had made the investing public aware that Hastings' personal Facebook page might be used to communicate information about Netflix.
The SEC's report on the investigation confirmed that Regulation FD applies to social media and other emerging means of communication used by public companies in the same way it applies to company websites, per the SEC's 2008 guidance that said websites can serve as an effective means for disseminating information to investors as long as investors have been made aware the website is where to look for information.
In the future, the SEC said it expects public companies to examine the factors that would indicate whether a particular channel is a "recognized channel of distribution" for communicating with investors as well as to disclose the steps the company has taken to alert the market about which forms of communication it intends to use for the dissemination of material.
Lona Nallengara, acting director of the SEC's Division of Corporation Finance, said, "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."