The Securities and Exchange Commission (SEC) issued a report on April 2, 2013, that
clarifies how companies can use social media outlets, such as Facebook and
Twitter, to announce key information about the company.
Regulation Fair Disclosure (Regulation FD) requires companies to distribute material information in a manner reasonably designed to get that information out to the general public broadly and non-exclusively.
The report was issued after the SEC’s Division of Enforcement investigated a post by Netflix CEO Reed Hastings, who used his personal Facebook page to announce that Netflix’s monthly online viewing exceeded one billion hours for the first time. According to the SEC, Netflix failed to report this information to investors through a press release or a Form 8-K filing, and a company press release later that day did not include the information.
“Neither Hastings nor Netflix had previously used Hastings’s personal Facebook page to announce company metrics, and Netflix had not previously informed shareholders that Hastings’s Facebook page would be used to disclose information about Netflix,” according to the SEC’s report.
Netflix’s stock price started to rise before the posting, and increased from $70.45 at the time of the Facebook post to $81.72 at the close of the following trading day.
“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 a statement. “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.”
The SEC stated that it chose not to pursue an enforcement action against Hastings or Netflix because of market uncertainty about the application of Regulation FD to social media. Instead, the SEC issued a report of investigation pursuant to Section 21(a) of the Securities Exchange Act of 1934.
The SEC’s report of investigation confirms that Regulation FD applies to social media and other emerging means of communication used by public companies the same way it applies to company websites. The SEC issued guidance in 2008 clarifying that websites can serve as an effective means for disseminating information to investors if they’ve been made aware that’s where to look for it.
The SEC’s report clarifies that company communications made through social media channels could constitute selective disclosures and require careful Regulation FD analysis.