According to a report issued by the Securities and Exchange Commission (SEC) on April 2, 2013, companies may use social media outlets such as Facebook, Tumblr, Twitter, and the like to make material public announcements in compliance with Regulation FD (Fair Disclosure) so long as they alert investors that they will use those social media channels to disseminate such information.

At issue was the question whether information released on social media could constitute selective disclosure by companies and therefore violate Regulation FD. Regulation FD requires company announcements to reach the public broadly and non-exclusively. The SEC’s report concluded that announcements using social media are subject to Regulation FD, but that such outlets would be covered by the SEC’s 2008 guidance (which originally only pertained to company websites) that material nonpublic information may be properly released through those forums when investors are told in advance where to look for the information.

The SEC’s report provides clarity to companies seeking to take advantage of emerging means of communications. Companies should review their formal means of public communication (both traditional and non-traditional) and consider situations in which employees and others could make unplanned or inadvertent public announcements, and ensure that they either effectively restrict these avenues of communication or alert investors, the market and the media that these are potential sources of company information.

The SEC’s report was triggered by its consideration of a Facebook post made by Netflix, Inc. Chief Executive Officer Reed Hastings on his personal Facebook page on July 3, 2012. Mr. Hastings had posted that Netflix had streamed 1 billion hours of content during June 2012. The SEC was concerned that the announcement could constitute material nonpublic information and that it was made in a forum where Netflix (a public company) had not made any prior announcements and into which it had never said it might release information. The SEC also was concerned that the announcement was never reproduced on Netflix’s own website, by press release or by Form 8-K.

The SEC decided not to pursue an action against Netflix or Mr. Hastings, and admitted that the case’s facts reflect new and uncharted territory. Notwithstanding this, the SEC report stated that in the future the SEC would generally not consider the release of material nonpublic information on a company officer’s personal social media site to be an acceptable method of Regulation FD disclosure unless the company had previously announced that the site was a potential source of company information (thus putting investors, the market and the media on alert to check such social media page for updates).

For more information about this client advisory, please contact:

Timothy R. Lavender
(312) 857-2630
tlavender@kelleydrye.com

Andrew P. Pillsbury
(312) 857-7086
apillsbury@kelleydrye.com

SEC Clarifies That Its Prior Guidance Allows Public Companies to Make Certain Announcements Using Social Media