United States: SEC Issues Guidance On Social Media And Regulation FD

Last Updated: April 22 2013
Article by Linda L. Griggs and Gail Alivia Pierce

Public companies are encouraged to rigorously analyze SEC guidance prior to disseminating material information via social media.

On April 10, Netflix, Inc. filed a Form 8-K, disclosing various means through which it publicizes company information, including the use of specified social media outlets. The Netflix disclosure follows recent guidance from the U.S. Securities and Exchange Commission (SEC or the Commission) relating to the use of social media by public companies to disseminate material company information in compliance with Regulation Fair Disclosure (Regulation FD).1 The title of the Commission's press release announcing the guidance, "SEC Says Social Media OK for Company Announcements if Investors Are Alerted," belies the rigorous analysis public companies must undertake to determine whether the social media outlets that they use are "recognized" channels of distribution such that their use would meet the requirement in Regulation FD that material information be distributed on a "broad, non-exclusionary" basis.2 This LawFlash discusses the need for "careful Regulation FD analysis comparable to communications through more traditional channels"3 prior to the dissemination of material information through social media.

Regulation FD

Regulation FD prohibits public companies from selectively disclosing material nonpublic information to certain persons enumerated in the Regulation, which generally include securities market professionals and securityholders who may trade on the basis of the material nonpublic information.4 The Regulation "is intended to ensure that all investors have the ability to gain access to material information at the same time."5 Thus, whenever a public company or a person acting on its behalf intentionally discloses material nonpublic information to the persons enumerated in Regulation FD, the company must disseminate the information to the public simultaneously. If material nonpublic information is unintentionally disclosed to the enumerated persons, the information must be publicly disseminated promptly.

SEC's Recent Guidance

The Commission's recent guidance on the use of social media outlets is outlined in an April 2, 2013, Report of Investigation (the Report) resulting from the Commission's investigation of Netflix CEO's disclosure of data regarding customer usage of streamed content during June 2012 on his personal Facebook page in July 2012.6 This June 2012 data, which reflected a significant increase in the use of streamed content, was not otherwise disseminated by Netflix, and, at that time, investors had not been notified that the CEO's Facebook page would be used to disclose company information.7 In the Report, the Commission noted its awareness of the increased use of social media outlets by public companies to disseminate company information and the uncertainty regarding the applicability of Regulation FD and its "Commission Guidance on the Use of Company Web Sites"8 (the 2008 Guidance on Web Site Usage) to the use of social media.

Quoting Regulation FD in the Report, the Commission noted that public companies must consider whether the dissemination of material nonpublic information through social media outlets is "reasonably designed to provide broad, non-exclusionary distribution of the information to the public."9 The Commission observed that the dissemination of material nonpublic information via a personal social media site, without advance notice that such a site would be used for these purposes, is unlikely to meet this distribution test. Further, the Commission noted that the principles outlined in the 2008 Guidance on Web Site Usage apply "with equal force to corporate disclosures made through social media channels."10

2008 Guidance on Web Site Usage

In the 2008 Guidance on Web Site Usage, the Commission addressed whether web site disclosures made by a company are deemed "public" for purposes of Regulation FD. In that regard, the Commission noted, among other things, that information posted on a company's web site is "public" if the company's web site is a recognized channel of distribution. Whether a company's web site is a recognized channel of distribution depends on "the steps that the company has taken to alert the market to its web site and its disclosure practices, as well as the use by investors and the market of the company's web site."11 Further, the Commission stated that company web site postings should disseminate information in a manner that makes the information available to the securities market in general, which requires a company to focus on how information is posted on its web site and whether it will be timely and readily accessible to investors and the securities market.12 The Commission outlined various factors that companies should consider in determining whether information is "'posted and accessible' and therefore 'disseminated,'"13 including whether a company keeps its web site current and accurate, whether a company uses other methods to disseminate information, and "whether and to what extent those other methods are the predominant methods the company uses to disseminate information."14

Implications

Prior to disseminating material nonpublic information via social media outlets, public companies must not only provide adequate advance notice of the social media outlets that will be used for the disclosure of important company information, but they must also determine whether information disclosed through social media outlets will be considered "disseminated" to investors and the securities market. Public companies should consider the 2008 Guidance on Web Site Usage in making this determination.

Additionally, given the "broad, non-exclusionary distribution" requirement for material information, a public company should consider, even when it has determined that it can effectively disseminate material information via social media outlets, whether to continue to disseminate material nonpublic information through "traditional" distribution channels also, such as press releases and reports filed under the Securities Exchange Act of 1934, as amended (the Exchange Act), particularly if these methods have been the "predominant methods" of dissemination by the company.15 Alternatively, similar to a suggestion in the 2008 Guidance on Web Site Usage,16 a company could consider filing or furnishing a current report on Form 8-K or issuing a press release that alerts investors and the securities market to the company's plan to disclose important information at a specified time on an identified social media outlet.17 Disclosure through traditional distribution channels would help ensure that all existing and possible new investors and other participants in the securities market will have access to the same information at the same time.

Practical Considerations

  • Public companies should consider whether their internal policies should be revised to prohibit employees and directors, who are not otherwise authorized to speak on behalf of the company, from using personal social media outlets to disclose nonpublic company information, as well as information about other companies, regardless of whether the information is material.
  • Public companies that are interested in developing social media outlets as recognized channels of distribution for material company information should consider referencing these outlets in press releases or reports filed under the Exchange Act as methods through which company information will be disclosed and then monitoring investor and other use of the outlets to evaluate whether any outlet becomes a recognized channel of distribution.
  • Public companies should consider whether to revise their Regulation FD policy to state that the company will not use corporate social media outlets to disseminate material nonpublic company information unless the company has first (i) determined that the social media outlets intended to be used will disseminate material nonpublic information on a broad, non-exclusionary basis (consistent with the factors outlined in the 2008 Guidance on Web Site Usage), (ii) disclosed on its web site and in filed reports that material nonpublic information may be disseminated through these social media outlets, and (iii) informed investors and the securities market about how to gain access to these outlets so that they can receive or obtain company information at the time it is so released. To the extent that a company determines that particular social media outlets have become recognized channels of distribution for the company and, thus, are appropriate ways for it to disseminate material information, the company should (i) consistently monitor the usage of its social media outlets to ensure that they remain recognized channels of distribution, (ii) identify specific persons to disseminate information that has been approved for distribution through such outlets, and (iii) consider whether press releases and/or reports under the Exchange Act should disclose the material information also or alert interested persons to the anticipated disclosure through the social media outlets.
  • Public companies that choose to use social media outlets for the dissemination of corporate information should consider developing protocols and compliance trainings for those individuals who are authorized to speak on behalf of the company. Training could include company lawyers, professionals in marketing and communications, C-suite executives, and other company administrators.

Footnotes

1. SEC, Report of Investigation Pursuant to Section 21(a) of the Securities Exchange Act of 1934: Netflix, Inc., and Reed Hastings, Release No. 34-69279 (Apr. 2, 2013), available here.

2. SEC, SEC Says Social Media OK for Company Announcements if Investors Are Alerted (Apr. 2, 2013), available here.

3. Report, supra note 1, at 5.

4. 17 C.F.R. § 243.100; Final Rule: Selective Disclosure and Insider Trading, Release No. 34-43154 (Aug. 15, 2000), available here.

5. Press Release, supra note 2.

6. The Commission did not take any enforcement action against Netflix or its CEO with respect to the CEO's disclosure of the June 2012 data.

7. In the Report, the Commission noted that Netflix's stock rose from $70.45 at the time of the CEO's disclosure to $81.72 at the close of the following trading day.

8. SEC, Commission Guidance on the Use of Company Web Sites, Release No. 34-58288 (Aug. 7, 2008), available here.

9. Report, supra note 1, at 6 (quoting 17 C.F.R. § 243.101(e)(2)).

10. Report, supra note 1, at 5.

11. 2008 Guidance on Web Site Usage, supra note 8, at 18–19.

12. Additionally, the Commission noted that, in evaluating whether information is public and therefore can be communicated to others, there must be a "reasonable waiting period for investors and the market to react to the posted information." Id. at 18.

13. Id. at 20.

14. Id. at 21–22.

15. In some cases, disclosing material information in reports filed under the Exchange Act will be necessary to ensure that prospectuses for ongoing offerings of securities include all material information. Additionally, while the New York Stock Exchange requires listed companies to quickly disclose material news to the public by means of any Regulation FD-compliant method (or combination of methods), it "encourages listed companies to comply with [its] immediate release policy by issuing press releases." NYSE Listed Company Manual § 202.06(A).

16. 2008 Guidance on Web Site Usage, supra note 8, at 23.

17. In the Report, the Commission suggests that public companies can identify on their web sites the specific social media outlets that they plan to use to disseminate material nonpublic information, noting that such additional disclosure would be minimally burdensome to companies and "would give investors and the markets the opportunity to take the steps necessary to be in a position to receive important disclosures - e.g., subscribing, joining, registering, or reviewing that particular channel." Report, supra note 1, at 7.

Copyright 2013. Morgan, Lewis & Bockius LLP. All Rights Reserved.

This article is provided as a general informational service and it should not be construed as imparting legal advice on any specific matter.

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
 
In association with
Related Topics
 
Similar Articles
Relevancy Powered by MondaqAI
Morrison & Foerster 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