#SEC Likes Social Media After All

Last December, the U.S. Securities and Exchange Commission (SEC) took issue with a chief executive officer after he used his Facebook page to provide an update on the company's business activities.

Now, the SEC has decided public companies can use social media like Facebook and Twitter to announce key information in compliance with Regulation Fair Disclosure (Reg FD)—where investors have been previously alerted as to which social media will be used to disseminate this information.

Welcome to the 21^st Century

This change in the SEC's position comes with the recognition that public companies are increasingly using social media to communicate with stakeholders, including shareholders. And that the ways in which companies may use these social media channels are not fundamentally different from the ways in which they use web sites, blogs, and RSS feeds.

With direct and immediate communication to investors now possible through social media channels, such as Facebook and Twitter, the SEC expects public companies to rigorously examine the factors indicating whether a particular channel is a “recognized channel of distribution” for communicating with their investors.

Read Longmore's blog, including a past entry on this topic, “SEC to Netflix: “I Am Not Your Friend (Nor a Follower),” on WillisWire HERE

Critical will be the notice given to alert the market concerning the forms of communication the company intends to use for disseminating material, non-public information: including the social media channels that may be used and the types of information that may be disclosed through these channel. Said the SEC release: “Without such notice, the investing public would be forced to keep pace with a changing and expanding universe of potential disclosure channels, a virtually impossible task.”

Netflix Off the Hook

Reg FD is intended to level the playing field by prohibiting selective disclosure when it comes to information concerning public companies. It provides that when a U.S. public company discloses material, nonpublic information to securities market professionals or select shareholders–and where it is reasonably foreseeable that they will trade on the basis of the information—it must then distribute this information in a manner reasonably designed to provide effective broad and non-exclusionary distribution to the public.

Simultaneously with the SEC's announcement recognizing new media announcements, it also disclosed its decision not to pursue an enforcement action against Netflix and its CEO. Neither had previously used the CEO's personal Facebook page to announce company metrics, and the company had not previously informed shareholders that his Facebook page would be used to disclose information about the firm.

But in its investigation, the SEC learned, in part from public commentary, that there was uncertainty concerning how Reg FD and the SEC's earlier 2008 Guidance was to be applied to disclosures made through social media channels. The earlier Guidance had explained when it comes to complying with Reg FD a public company makes public disclosure when it distributes information “through a recognized channel of distribution.”