United States: Regulation FD And Social Media: Practical Lessons From The SEC’s Netflix Release

In an April 2 release,1 the Securities and Exchange Commission moved its Regulation Fair Disclosure ("Reg. FD") guidance into a new era. For public companies, many of the "old" messages and challenges remain.

The release centers on a July 3, 2012 posting by Netflix, Inc. CEO Reed Hastings on his personal Facebook page. The posting detailed that, over the previous month, online viewing of Netflix-distributed content "exceeded 1 billion hours for the first time ever . . . ."2 The information gradually was disseminated further through various media, Internet and marketplace channels over the course of the day. Netflix's stock price increased from $70.45 at the time of the Facebook post to $81.72 at the close of next trading day.3

The SEC investigated whether the Facebook post violated Reg. FD. At its core, Reg. FD forbids certain selective disclosures of material, nonpublic information; it requires an issuer communicating such information to securities market professionals and shareholders to disseminate this information simultaneously – and broadly – to the marketplace. At the time of the post, Hastings' Facebook page had over 200,000 followers. The SEC staff assessed whether disseminating this specific information in this manner was consistent with Reg. FD.

The SEC concluded the investigation with the release of the "Netflix Report" – a public report issued under Section 21(a) of the Securities Exchange Act. Such reports are used infrequently by the Commission to address novel issues of broad interest. Individuals and entities are identified in Section 21(a) reports, but they are not defendants or respondents in an SEC-initiated proceeding. In 2002, for example, a Commission report relating to Motorola, Inc. addressed the materiality analysis that is central to Reg. FD judgments.4 In effect, a Section 21(a) report serves as a securities law compliance "teaching tool" for the marketplace.

The Netflix Report stresses that issuers may use social media networks such as Facebook or Twitter to disseminate material information if companies have previously alerted investors that these channels will be used for such purposes. In short, investors need to be told where to look for material disclosures. Without such notice, the SEC noted, investors would be left with the "virtually impossible task" of monitoring a constantly evolving universe of disclosure channels.

While the facts leading to the Netflix Report are a product of new age technology, the report prompts five practical lessons applicable to all public companies and their counsel.

First, each public company should reassess which disclosure channels best suit their needs and their audience. It is unlikely that many companies will signal that Facebook accounts of senior officers will be a channel for disclosure of corporate information. That said, the Netflix Report can prompt a reassessment of what channels should be used for investor communications. Public company investor relations departments may wish to make greater use of company Facebook, Twitter, website and e-mail updates as supplements to their mandated SEC disclosures.

Such adaptations have always been a constant of life under the primary securities laws. The core statutes were adopted in the early 1930s when one technological imperative was running electricity to all U.S. households. More recently, to the extent that the widely-reported Netflix investigation chilled the consideration of alternate channels, the Netflix Report provides a "road map" for their future use.

Second, "old school" broad dissemination should remain a staple for disclosing a company's core material information. The fact that material information could be disclosed through a Twitter account does not make that the right vehicle for that disclosure. Information most central to the marketplace – e.g., quarterly operating results, adjustments in earnings guidance, significant corporate transactions – should still be sourced first through formal corporate releases and, as appropriate, Form 8-K filings on the SEC's EDGAR system. This directs the information to the sources where investors would look for this information.

Clearly, there is more room now to supplement these formal announcements through, for example, postings and tweets that draw attention to their content. Key disclosures generally should gravitate first to the conventions that the market expects and fit most directly in the existing SEC mold.

Third, securities law risks can extend to a company's statements broadly disseminated through social media. Messages limited to as little as 140 characters are necessarily cryptic. Whatever their channel, if these statements are materially false, they can expose the company and the officers involved to the various legal risks under the federal securities laws.

When a public company avails itself of social media channels, it must adapt to this forum the safeguards that it applies to its SEC filings and earnings calls. When public companies first introduced Internet websites, they had to develop conventions to vet content before it was made accessible to the public. The current challenge with social media centers on capitalizing on the reach and speed of this medium while maintaining controls over the content. While these controls are company-specific, they often will include narrowly limiting the officers who can "speak" for the company, limiting topics that will be addressed in these channels and providing for advance review of these disclosures.

Fourth, the Netflix Report points to the broader challenges of "disclosure controls" in today's world. Disclosure controls are the processes a company maintains to "roll up" its consolidated operating results into the disclosures mandated SEC reports. Disclosure controls set the regimen for what information gets distributed and who is responsible for that work. The Netflix Report is a reminder that in frenetic information age, a few quick sentences can land a key executive and the company in an extensive SEC investigation. Like the Internet forums that preceded the widespread use of Facebook, social media presents new opportunities to magnify even the smallest leaks (and the speed at which some market participants can trade on this information). Management must be reminded constantly to control the sensitive corporate information at their fingertips and central to Reg. FD regulation.

Finally, the Netflix Report should cause internal counsel to mentally revisit the systems in place to support the senior managers who "face" investors on a regular basis. In some respects, SEC-mandated disclosures – Forms 10-K and 10-Q – might be considered the "easier" half of a company's disclosure regimen. There are fixed rules, ample guidance and information is released in a controlled setting when it is "ready." By contrast, a public company's investor relations contacts – typically the CEO, CFO and Investor Relations managers – must address the company's hardest questions "on their feet" in earnings calls, investor conferences and daily telephone calls. As a tacit acknowledgement of these challenges, Reg. FD is one of the rare Commission rules that anticipates errors (inadvertent disclosures) and creates a "prompt" disclosure antidote.

Corporate counsel should take the Netflix Report as a reminder to consider what systems are in place for the officers who operate in this forum. Since pointed questions inevitably come in these informal settings, the planned responses need to be vetted in advance. With guidance from counsel, management must enter these encounters with a clear sense of what information is material for that specific company.

There is no escaping that the way in which the world communicates key information is constantly evolving. On the day after the release of the Netflix Report, CNN reported the termination of a Rutgers University coach for abusive behavior; the news flash noted that this development had first been disclosed through "a tweet from the university's athletics department." In such a world, counsel must work closely with management to help them continue to be able to respond to the marketplace in real time.


1 Report of Investigation Pursuant to Section 21(a) of the Securities Exchange Act of 1934: Netflix, Inc. and Reed Hastings, Exchange Act Rel. No. 69,279 (Apr. 2, 2013) ("Netflix Report").

2 Id. at 4

3 Id.

4 Report of Investigation Pursuant to Section 21(a) of the Securities Exchange Act of 1934: Motorola, Inc., Exchange Act Rel. No. 46,898 (Nov. 25, 2002).

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.

Similar Articles
Relevancy Powered by MondaqAI
Morrison & Foerster LLP
In association with
Related Topics
Similar Articles
Relevancy Powered by MondaqAI
Morrison & Foerster LLP
Related Articles
Related Video
Up-coming Events Search
Font Size:
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
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
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.


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.


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