The Securities and Exchange Commission on April 2, 2013 issued a report that gives conditional approval for public companies to use social media outlets, like Facebook and Twitter, to announce key information in compliance with Regulation Fair Disclosure (“Regulation FD”).
Regulation FD requires companies to distribute material information in a manner reasonably designed to get the information to the general public broadly and non-exclusively. Regulation FD is intended to ensure that all investors have the ability to gain access to material information at the same time.
The SEC warned that company communications made through social media channels can constitute selective disclosure, and therefore must comply with Regulation FD. The SEC indicated that Regulation FD compliance is present if investors have been alerted about which social media will be used by the company to disseminate material information. The SEC release states that companies must provide notice to “the market about which forms of communication a company intends to use for the dissemination of material, non-public information, including the social media channels that may be used and the types of information that may be disclosed through these channels.”
The SEC had previously issued guidance in 2008 with respect to information which public companies can put on their websites. However, very few companies to date have relied on the 2008 guidance to make announcements solely through company websites. Most companies contemporaneously issue a press release or file an 8-K.
The SEC approval for issuing material information through social media is specifically conditioned on the particular social media being “a recognized channel of distribution” for the company. This requires analysis by the company to determine that information disseminated through the particular social media was regularly picked up by the market and reported in the media.
The current SEC release answers some of the questions raised by the SEC’s case against the Netflix CEO who used a personal social media site to disseminate information which was determined to be material and nonpublic. The SEC indicates that such personal sites are unlikely to qualify as a method “reasonably designed to provide broad non-exclusionary distribution of company information”. The SEC determined not to pursue the case against the Netflix CEO since the SEC had not previously issued the specific company guidance concerning the social media matters.
Consequently, any release of material nonpublic information on social media must be preceded by (1) an alert to the investing public that social media will be used for such purposes and (2) a determination that a particular social media channel is a “recognized channel of distribution” for communicating with a company’s investors. If such conditions are not clearly met, public companies can be expected to continue to use press releases and 8-K’s to disseminate material non-public information.