SEC Fair Disclosure Rules and Social Media

April 22, 2013

Social Media AnounceRecently, the U.S. Securities and Exchange Commission (SEC) concluded that social media systems such as Facebook and Twitter provide acceptable vehicles for use to communicate information to shareholders.  This interpretation recognizes the dramatically expanding role of social media in commercial communications.

The decision was made in the context of an SEC investigation of social media communications offered by Netflix CEO, Reed Hastings.  That investigation examined whether certain social media posts offered by Hastings violated the SEC’s “fair disclosure” requirements.

The fair disclosure rules require publicly traded companies to communicate information through means that do not provide an advantage to any one group of investors relative to another group.  Concern was expressed that dissemination of information through social media, as Hastings had reportedly done, could constitute a form of unfair disclosure of information.

After examining the Hastings case, the SEC concluded that use of social media to distribute business information was not necessarily a violation of fair disclosure requirements.  If the company involved has previously advised investors that information will be released through social media, use of those systems is lawful.

The SEC’s action effectively extends its 2008 ruling regarding Web sites to social media.  In 2008, the SEC determined that it was lawful for companies to use their corporate Web sites to distribute important business information to investors.

The SEC ruling approving social media for distribution of corporate information seems to contemplate use of the social media pages of the companies involved for the release of information.  It appears that the SEC may still have concern about release of company information through the personal social media pages of company executives or other individuals.

One of the key elements of the ruling appears to be clear, advance notice to investors.  Companies should clearly advise investors in advance where to look for company information on social media platforms.

The SEC’s action is both timely and appropriate.  The increasing popularity of social media platforms makes them useful mechanisms for dissemination of a wide range of information, including corporate information.

The SEC’s caution on the subject is also, however, justified.  Social media systems, although highly popular, are not actively used by a significant portion of the population.  Additionally, common characteristics of social media communications include their informal and incomplete nature.  Informal and incomplete communications can have serious adverse consequences when financial information is involved.

It is likely that a growing number of regulatory authorities will be called upon to define appropriate roles for social media communications in a range of important communications contexts.  The approach adopted by the SEC, approving such use but requiring clear advance notice to the parties involved, provides an effective model for a variety of other situations.