United States: SEC Outlines Position On FD Disclosure Using Social Media

The Securities and Exchange Commission (SEC), on April 2, 2013, outlined a new disclosure position that clarifies that public companies can use social media outlets like Facebook and Twitter to announce key information in compliance with Regulation Fair Disclosure (Regulation FD). Effectively, this new SEC position represents an update to the SEC's August 2008 Guidance on the Use of Company Websites1 and a necessary response to the increased use of communications through social media that has occurred in the past five years.

A Quick Refresher on Regulation FD

Regulation FD prohibits public companies, or persons acting on their behalf, from selectively disclosing material, nonpublic information to securities professionals or shareholders where it is reasonably foreseeable that they will trade on that information before the information is generally made available to the public. This rule was adopted in 2000 out of concern that public companies were selectively disclosing important nonpublic information, such as advance warning of earnings results, to securities analysts before making full disclosure of the same information to the general public. While even in 2000, the SEC noted that Regulation FD "does not require use of a particular method, or establish a 'one size fits all' standard for disclosure," in practice the conservative approach to comply with Regulation FD had been through the use of disclosure in a Form 8-K filed with the SEC either as a primary method of disclosure or to simultaneously supplement other public disclosure.2

In August 2008, in response to public companies' increasingly widespread use of their websites to disseminate information to investors and the market, the SEC issued its Guidance on the Use of Company Websites. The 2008 Guidance explained that a company's website could be an adequate channel of disclosure for purposes of Regulation FD if the company has made investors, the market, and the media aware of the channels of information distribution it expects to use, so these parties know where to look for disclosure of material information about the company or what they need to do to be in a position to receive this information.

Background of the SEC's Newly Announced Position

The SEC's new disclosure position is set forth in a "Report of Investigation" (Report),3 which is a method occasionally used by the SEC when it wants to issue broad guidance from a specific investigation. In this case, the underlying investigation was whether Netflix, Inc. and its CEO, Reed Hastings, had violated Regulation FD when Hastings used his personal Facebook page, on July 3, 2012, to announce that Netflix had streamed 1 billion hours of content in the prior month of June. This level of content represented a 50% increase in streaming hours from the last time Netflix had disclosed this metric on January 25, 2012 in its earnings call.

Netflix's stock price increased from $70.45 at the time of the Facebook post to $81.72 at the close of the following trading day. Netflix did not otherwise report this information to investors through a press release or Form 8-K filing. As noted by the SEC in its Report, the announcement of the 1 billion streaming milestone only reached the securities market incrementally. A technology-focused blog noted it after about an hour and a handful of news outlets picked it up after about two hours. After the markets closed, several articles in the mainstream financial press picked up the story.

In the end, the SEC did not pursue sanctions or penalties against Hastings or Facebook for a violation of Regulation FD. However, the SEC did use the facts as a basis to set forth new guidance on the use of social media to comply with Regulation FD.

The SEC's Position as Set Forth in the Report of Investigation

The SEC's Report confirms that Regulation FD applies to social media in the same way it applies to company websites. In confirming this position, the SEC made two primary points: (1) a public company's communication through social media channels requires the same careful Regulation FD analysis as communication through traditional channels, and (2) as previously outlined in the 2008 Guidance, the concept that the investing public should be alerted to the channels of information distribution a company will use for disclosure applies if a company will use social media. In the case of Hastings and Netflix, the information in question was posted on Hastings' personal Facebook account. Additionally, Netflix had not previously used its or Hastings' Facebook page to announce company metrics, and had not taken steps to alert investors that Hastings' personal Facebook page would be used as a medium for communicating information about Netflix.

The Report makes clear that a company must inform the market about what type of communication channels, including social media channels, it expects to use to disseminate material nonpublic information.

Some Practical Guidance

  • A key element to the use of social media as a disclosure method is advance notice to investors of this intention. Companies should consider notifying investors about potential social media forums 1) on the company's website homepage or investor relations site, 2) in the company's press releases, and 3) in the company's SEC filings. The SEC noted, however, that they doubt that an executive's personal social media sites (as opposed to those used by the company) are an appropriate method to disclose company material information.
  • Public companies and their directors should develop formal policies that address their company's and executives' use of social media. Among other things, these policies should address to what extent executives can post information concerning the company on their personal social media sites, should ensure there is advance notice of social media forums where official company information will be posted, and should consider whether information determined to be material will be simultaneously disclosed on a Form 8-K or in some other centralized location.
  • While the SEC's position in the Report for the first time articulates that social media can be used by public companies to comply with Regulation FD, this position does not reflect a change or relaxation of Regulation FD, and is largely an extension of the positions in the 2008 Guidance.
  • Early commentary has been somewhat critical of the SEC's position. On the one hand, certain commentators believe that this position may encourage dispersed disclosure by companies when it should be easy for companies to ensure that all material disclosure is set forth in one spot, for instance, on a company's website. On the other hand, studies have demonstrated that public companies are increasingly using social media for communications, and many commentators do not believe the new positions provide clear enough guidance to safely accomplish this in compliance with Regulation FD.

Footnotes

1 Commission Guidance on the Use of Company Websites, SEC Release No. 34-58288 (August 1, 2008), available at http://www.sec.gov/rules/interp/2008/34-58288.pdf ("2008 Guidance").

2 Final Rule: Selective Disclosure and Insider Trading, SEC Release No. 34-43154 (August 15, 2000), available at http://www.sec.gov/rules/final/33-7881.htm#.

3 Report of Investigation Pursuant to Section 21(a) of the Securities Exchange Act if 1934: Netflix, Inc. and Reed Hastings, SEC Release No. 69729 (April 2, 2013), available at http://www.sec.gov/litigation/investreport/34-69279.pdf.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Similar Articles
Relevancy Powered by MondaqAI
Morrison & Foerster LLP
Hunton Andrews Kurth LLP
 
In association with
Related Topics
 
Similar Articles
Relevancy Powered by MondaqAI
Morrison & Foerster LLP
Hunton Andrews Kurth LLP
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions