SEC describes how social media can be used to distribute company info

BY KEN TYSIAC
April 2, 2013

U.S. public companies can use social media to make company announcements as long as they inform investors of the channels they will use to distribute the information, according to a new pronouncement by the SEC.

The SEC on Tuesday released a report that makes it clear that companies can use social media outlets such as Facebook and Twitter to announce key information in compliance with Regulation Fair Disclosure (Regulation FD), so long as investors have been alerted about which social medium the company will use to report the information.

The SEC’s report describes its findings and recommendations in its investigation of Netflix and its CEO, Reed Hastings. On July 3, Hastings used his personal Facebook page to announce that Netflix had streamed 1 billion hours of content in June, according to the report.

Although the commission has decided not to pursue an enforcement action in the matter, 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 price of a share of the company’s stock rose from $70.45 at the time of Hastings’ Facebook post to $81.72 at the close of the following trading day, according to the SEC.

The report says Regulation FD applies to social media and other emerging means of communication in the same way it applies to public companies’ websites. Guidance the SEC issued in 2008 said that websites can be used to inform investors as long as they have been made aware that company information will be posted on the websites.

“One set of shareholders should not be able to get the jump on other shareholders just because the company is selectively disclosing important information,” George Canellos, the acting director of the SEC’s Division of Enforcement, said in a news 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 information to the public broadly and nonexclusively, so that all investors will be able to get the information at the same time. Tuesday’s report represented the SEC’s first specific guidance on whether social media networks can satisfy the disclosure requirements of Regulation FD.

Ken Tysiac ( ktysiac@aicpa.org ) is a JofA senior editor.

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