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10-Ks, 10-Qs, 8-Ks ... and Twitter

by David C. Erroll
Eyes on Wall Street |
... companies and their executives are on notice to make clear which social media channels they may use for public announcements...
If any of us still thought that Facebook, Twitter, and other social media outlets were just for cheezburger-haz-ing cat pics, the Securities and Exchange Commission put an end to that yesterday.

On April 2, 2013, the SEC
released new guidance regarding how companies communicate with their investors, and it could prove be the most sweeping change in years: Companies can now use social media services to make public statements, as long as they "provide adequate notice that such a site may be used for that purpose."

The guidance stems from an SEC investigation into a post by Reed Hastings, CEO of Netflix, Inc., on his personal Facebook page on July 3, 2012, in which he announced that Netflix had streamed 1 billion hours of content during the prior month. This disclosure not only represented a substantial increase in Netflix streaming business, but also coincided with a rise of more than 16 percent in Netflix share price over two days.

The SEC concluded during
the ensuing investigation, that Netflix did not report this development "through its standard distribution channels, or otherwise announce the streaming milestone." That raised the question of whether the post violated Regulation FD, which requires companies to make public disclosures "through a recognized channel of distribution," avoiding selectively disclosing material, nonpublic information.

Ultimately, the SEC chose not to pursue an enforcement action against Netflix or Hastings, but did make clear that "without advance notice to investors that [social media] may be used for this purpose, [it] is unlikely to qualify" as an appropriate method, "even if the individual in question has a large number of subscribers, friends, or other social media contacts."

George Canellos, the Acting Director of the SEC's Division of Enforcement noted that "[m]ost 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."

As of today, however, companies and their executives are on notice to make clear which social media channels they may use for public announcements-and investors are on notice to learn and follow those channels.

The SEC's press release can be found here.

The SEC's report on its investigation into Hasting's post on Facebook can be found here.