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SEC ‘likes’ company disclosures via social media

The US Securities and Exchange Commission (SEC) has given the green light for companies to disclose non public information through its social media channels, provided that sufficient steps are taken to alert investors and stakeholders.

The SEC has published a report in which it investigated whether a post disclosing key information by the chief executive of Netflix on Facebook could have violated US investor protection regulations.

The report concluded that while the aim is not to prevent companies from using social media channels it reminds issuers that these disclosures need to be compliant with Regulation FD.

"The 2008 Guidance explained that issuers must take steps sufficient to alert investors and the market to the channels it will use for the dissemination of material, non public information. We believe that adherence to this guidance will help, with minimal burden, to assure compliance with Regulation FD and the fair and efficient operation of the market," SEC report stated.

The Center for Audit Quality (CAQ) executive director Cindy Fornelli welcomed the report. She said the watchdog's guidance would "help ensure that all investors will have equal opportunity to get such information".

"As deputy director of the division of investment management when the SEC first allowed an electronic only variable annuity offering, I observed firsthand how quickly unprecedented change in providing access to information can be accepted as the status quo. Adapting new technologies such as social media to provide increased information in real time to investors from Wall Street to Main Street is in the best interests of all capital market stakeholders," Fornelli added.

On 3 July 2012, Netflix, a media streaming service provider, chief executive Reed Hastings announced on his personal Facebook page that the company had streamed 1 billion hours of content in the previous month.

This caused speculation as to whether this was the reason for the rise in Netflix' share price, an increase of $11.27 to $81.72 at the close of the following trading day after the announcement was made.

Subsequently, the SEC begun to investigate whether Netflix had violated the Regulation Fair Disclosure (Regulation FD) Act and the 1934 Securities Exchange Act. Both forbid a company from disclosing information which professionals can use to trade on before it is made available to the general public.

Previously in 2008, the regulator also issued guidance on the Use of Company Web Sites, which considered websites, blogs and RSS feeds as "recognised channels of distribution" for the purpose of complying with Regulation FD.

However, the SEC concluded Hastings actions had not violated its regulations and did not pursue any enforcement action. But the investigation did cast doubts on whether or not these regulations do actually apply on social media channels such as Facebook or Twitter.

SEC division of enforcement acting director George Canellos said 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".

Related links

Securities and Exchange Commissions

Report of Investigation Pursuant to Section 21(a) of the Securities Exchange
Act of 1934: Netflix, Inc., and Reed Hastings

Center for Audit Quality


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