August 26, 2013
In a highly publicized case a CEO and his company were subjected to investigation by the SEC after the CEO elected to use social media in July 2012 to disclose material non-public information. The issue for the SEC was whether or not the disclosure of such information by posting a statement on his personal Facebook page amounted to a violation of the company’s disclosure obligations under Regulation FD. In brief, Regulation FD, which was enacted to promote full and fair disclosure of material non-public information by public companies and prevent selective disclosure of material non-public information, provides that when an issuer discloses material non-public information to holders of its securities or to securities market professionals who are reasonably likely to trade on the information, the issuer must make a simultaneous disclosure (in the case of intentional disclosure of the information) or prompt disclosure (in the case of unintentional disclosure of the information) of the same information to the general public. For detailed discussion of Regulation FD, see Gutterman, Business Transactions Solutions §106:84 et seq.
Companies can, and typically do, comply with their Regulation FD disclosure requirements by filing a Form 8-K with the SEC. However, companies can also use other methods provided that they are reasonably designed to provide broad, non-exclusionary distribution of the information to the general public. For example, companies have used their websites for several years to make disclosures and SEC guidance issued in 2008 (the “2008 Guidance”) indicated that electronic disclosures of this type could comply with Regulation FD provided that the company’s website was a “recognized channel of information”, a finding that would be based on various factors enumerated by the SEC at that time.
Among the distribution strategies that companies are now considering is using social media and the SEC investigation referred to above, which was conducted following a posting by the CEO of Netflix regarding the amount of content Netflix subscribers had accessed, led to the release in April 2013 of a Report of Investigation (the “Report”) that provided guidance to public companies regarding their use of social media to disclose material non-public information and essentially extended the 2008 Guidance to social media by suggesting that compliance with Regulation FD would requires that (i) the company must have made its investors, the market and the media aware of the fact that it intends to use specific social media channels to disseminate information, and (ii) the selected channels must be readily accessible to the general public.
Notice should be taken in advance that the factors mentioned by the SEC in both the 2008 Guidance and the Report are arguably quite subjective and fact-intensive and, as a result, many companies have continued to supplement website and social media disclosures with traditional methods of public disclosures such as Form 8-Ks and press releases in order to comply with Regulation FD. When filing their Form 8-Ks companies have established a foundation for future social media disclosures by including disclosures in their filings that are intended to put the market on alert that material information regarding their activities may be post on social media platforms that will be included on a continuously updated list on the company’s investor relations website and will typically include the company’s blog, Facebook page and Twitter feed. Other important tips for using social media as a disclosure tool without running afoul of Regulation FD include the following:
- Advance notice of intended use of social media platforms should not only be included in Form 8-Ks, as described above, but in other SEC filings, on the company website, in press releases and in any other form of communication to investors, the media and general public.
- Each of the social media platforms selected by the company as disclosure channels should be verified as being readily available and easily accessible and usage should be consistent to provide credible evidence of creation and maintenance of a “recognized channel of information” (i.e., if one platform is designated it should be the only one used or if multiple platforms will be used information should always be posted on each of those platforms).
- Before any disclosure is made on a social media platform the content should be analyzed to determine whether it falls within the scope of Regulation FD and, if so, the company must be sure that the social media platform has become a recognized channel of information and that the same disclosures are made through all other means regularly used by the company including other social media platforms, Form 8-K, press release and website.
- Company personnel involved in communications on the company website and social media platforms should be trained regarding how their activities interact with the company’s Regulation FD compliance obligations and social media usage should be integrated into the company’s formal Regulation FD policies and procedures.