"SEC Says Social Media OK for Company Announcements if Investors Are Alerted" and Issues Guidance in a Report on its Investigation of Netflix and its CEO's Facebook Posting of Company Information
At mid-morning on July 3, 2012, the CEO of Netflix, Inc. posted on his personal Facebook page a statement that Netflix had broken a record by streaming one billion hours of content during the prior month, without Netflix simultaneously issuing a press release or Form 8-K containing the same information. The information spread quickly, however, and the price of Netflix's common stock began to rise from around $70 per share within a couple hours of the posting and traded at around $81 per share by mid-morning on July 5 (the US markets were closed for the holiday on July 4).
In December 2012, the US Securities and Exchange Commission announced that it was investigating whether the CEO's Facebook posting violated Regulation FD, which prohibits companies from making "selective disclosures."1 A feisty debate of sorts, among lawyers, the media and investor relations and other business people generally, ensued. On the one hand, it seemed clear to some that the posting (if it involved material information) was at least in technical violation of Regulation FD, which provides that disclosures must be made "through a recognized channel of distribution" in order to be deemed to be "public" rather than "selective" -- but Netflix had never taken steps to identify, or previously used, the CEO's personal Facebook page as a medium for Netflix to communicate information about itself or its business. On the other hand, because the posting initially reached the 200,000 subscribers to the CEO's personal Facebook page and then filtered quickly through the mainstream media and within hours had been picked up by analysts and the markets, some said the Facebook post resulted in dissemination of the news to the general public sufficient to satisfy Regulation FD.
On April 2, 2013, the SEC issued a much-anticipated report on its investigation of whether Netflix and its CEO violated Regulation FD. The SEC report makes clear that companies can use social media, such as Facebook and Twitter, to announce key information in compliance with Regulation FD so long as the company has alerted investors about which specific social media the company and its spokespersons will use to disseminate such information. The SEC also stated, without making any conclusions about the materiality of the information in the Netflix CEO's Facebook posting, that it had "determined not to pursue an enforcement action in this matter" and did not allege any wrongdoing by Netflix or its CEO.
The report provides useful guidance to "clarify and amplify two points." First, that Regulation FD and the careful analysis it requires companies and their spokespersons to make about their traditional communications, applies equally to company communications via social media, whether via Twitter, Tumblr, a blog or Facebook posting or some currently unfamiliar venue. Second, that Regulation FD applies to social media, whatever its mode, the same way it applies to company websites, which means that companies can communicate by social media to investors and the public generally so long as the company has previously publicly and specifically identified the social media channel as a "recognized channel of distribution."
The report provides detailed guidance on how the SEC will, and how public companies should, analyze corporate communications via social media. It seems to us that the report strikes the right balance as social media continues to change significantly the way people and public companies communicate. The report demonstrates the flexibility of seemingly age old guidance2 to current communications technologies and reminds companies that investors should not be required to monitor any number of potential disclosure channels for key corporate information -- instead, public companies must tell investors specifically where to look in order to find the latest news first.
Link to the SEC's Report: http://www.sec.gov/litigation/investreport/34-69279.pdf
Link to SEC press release on the Report: http://www.sec.gov/news/press/2013/2013-51.htm
Footnotes
1.See our December 13, 2012 alert "Social Media at the Crossroads of Securities Law: A Cautionary Note" at: http://www.dentons.com/insights/alerts/2012/december/13/social-media-at-the-crossroads-of-securities-law-a-cautionary-note
2.The report reiterates, and applies to social media, guidance made by the SEC in Release No. 34-58288, Commission Guidance on the Use of Company Websites (Aug. 7, 2008), available at http://www.sec.gov/rules/interp/2008/34-58288.pdf.
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