On April 2, 2013, the Securities and Exchange Commission issued a report clarifying its stance on the use of social media sites like Facebook and Twitter upon completion of going public transactions. The SEC has determined issuers may use social media to report key information in compliance with Regulation Fair Disclosure (Regulation FD), as long as investors are alerted to the specific social media that will be used to disseminate such information. Additional limitations continue to apply to communications during the Form S-1 registration statement process.
Regulation FD requires that companies who complete going public transactions disseminate material information in a manner reasonably designed to get the information out to the general public broadly and non-exclusively, if they become SEC reporting issuers. This results from the company filing a Form S-1 registration during the going public process.
Regulation FD is intended to ensure that all investors gain access to material information at the same time after a going public transaction is complete. SEC’s new report finds that Regulation FD applies to social media and other emerging means of communication may be used by public companies in the same way they use company websites. In 2008, the agency issued a report confirming that public company websites can appropriately be used to communicate important information to the investing public. The April 2, 2013 report, while adding some social media sites to the list of permissible venues, notes that public company disclosure made through social media may in some cases constitute selective disclosure and, therefore, requires careful regulation FD analysis. “One set of shareholders should not be able to get a jump on other shareholders just because the company is selectively disclosing important information,” said George Canellos, Acting Director of the SEC’s Division of Enforcement. “Most social media are perfectly suitable methods for communicating with investors, but not if the access is restricted or if investors don’t know that’s where they need to turn to get the latest news.”
Lona Nallengara, Acting Director of the SEC’s Division of Corporation Finance, added, “Companies should review the Commission’s existing guidance — it is flexible enough to address questions that arise for companies that choose to communicate through social media, and the guidance does so in a straightforward manner.”
The SEC’s recent report stems from an SEC Division of Enforcement inquiry into a post by Netflix CEO Reed Hastings on his personal Facebook page stating that Netflix’s monthly online viewing had exceeded one billion hours for the first time. Netflix did not report this information to investors through a press release or Form 8-K filing, and a company press release issued later in the day did not include the information posted on Facebook. Neither Hastings nor Netflix had previously used his Facebook page to announce company metrics, and they had never before taken steps to alert investors that Hastings’ personal Facebook page might be used as a medium for communicating information about the company. The SEC chose not to initiate an enforcement action or allege wrongdoing by Hastings or Netflix because of general uncertainty about the application of Regulation FD to social media.
The SEC advises that each instance must be evaluated on its own facts, but it seems clear they do not feel the disclosure of material, nonpublic information on a corporate officer’s personal social media website page without advance notice to investors that the site may be used for this purpose — is unlikely to qualify as an acceptable method of disclosure under the securities laws. The agency’s view is that the personal social media sites of individuals employed by a public company would not ordinarily be considered appropriate channels for the transmission of material corporate information.
The SEC’s report can be viewed here: SEC’s Report of Investigation.
For further information about this securities law blog post, please contact Brenda Hamilton, Securities Attorney at 101 Plaza Real S, Suite 202 N, Boca Raton Florida, (561) 416-8956, by email at info@securitieslawyer101.com or visit www.gopublic101.com. This securities law blog post is provided as a general informational service to clients and friends of Hamilton & Associates Law Group and should not be construed as, and does not constitute, legal and compliance advice on any specific matter, nor does this message create an attorney-client relationship. For more information about going public and the rules and regulations affecting the use of Rule 144, Form 8K, crowdfunding, FINRA Rule 6490, Rule 506 private placement offerings and memorandums, Regulation A, Rule 504 offerings, SEC reporting requirements, SEC registration statements on Form S-1 , IPO’s, OTC Pink Sheet listings, Form 10 OTCBB and OTC Markets disclosure requirements, DTC Chills, Global Locks, reverse mergers, public shells, direct public offerings and direct public offerings please contact Hamilton and Associates at (561) 416-8956 or info@securitieslawyer101.com. Please note that the prior results discussed herein do not guarantee similar outcomes.
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