Yesterday, the Securities and Exchange Commission (SEC) directly addressed the application of Regulation Fair Disclosure (Regulation FD) to corporate use of social media outlets such as Facebook and Twitter. In a Report of Investigation—a format used by the SEC to issue general guidance based on a specific situation—the SEC expressly stated that Regulation FD applies to social media in the same manner as it does to company websites: Any of these communication channels can serve as effective, legal means of broadly disseminating material information to investors, if access to them is unrestricted and if the company has provided advance notice that it may use them for that purpose. SEC Release No. 69279, Report of Investigation Pursuant to Section 21(a) of the Securities Exchange Act of 1934: Netflix, Inc., and Reed Hastings (Apr. 2, 2013).
The investigation described in the report concerned a Facebook posting by Netflix, Inc.’s Chief Executive Officer, Reed Hastings. In July 2012, Mr. Hastings announced on his personal Facebook page that Netflix monthly viewing had reached a new milestone in June. The report noted that Netflix made no accompanying press release, no company website or company Facebook page posting, nor Form 8-K filing containing the same information. Mr. Hastings and Netflix claimed, in their defense, that the posting did not constitute selective disclosure and, moreover, that it contained no material information. Enforcement actions under Regulation FD have been rare since its passage; generally, the SEC appears reluctant to bring actions against companies that have made reasonable, good-faith attempts to comply with the rule. The report stated that the SEC will not pursue an enforcement action in the Netflix case.
Regulation FD was adopted in 2000 to ensure that all investors receive equal access to material information. Companies that disclose material, nonpublic information to market participants must do so in a manner reasonably designed to provide broad, nonexclusionary distribution of the information to the public. In 2008, the SEC released its Guidance on the Use of Company Web Sites to help issuers determine whether company website postings could constitute effective public dissemination of information in compliance with Regulation FD. Yesterday’s report emphasized that Regulation FD requires a facts-and-circumstances analysis that should be carefully applied to all corporate communications, whether made through social media or a traditional channel. According to the report, the key question is “whether the company has made investors, the market, and the media aware of the channels of distribution it expects to use, so these parties know where to look for disclosures of material information about the company or what they need to do to be in a position to receive this information.” As we discussed in a recent article , there are many ways that a company can enable social media outlets and other emerging communication platforms to be used as “recognized channels of distribution” under Regulation FD.
The SEC report provides welcome guidance to public companies, which now may use social media channels for investor relations purposes without fear of violating Regulation FD, so long as necessary steps are taken.
This piece was originally published by Wachtell, Lipton, Rosen and Katz LLP on April 3, 2013