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The Securities and Exchange Commission (SEC) clarifies in a recent report that companies may use social media outlets such as Facebook and Twitter to ...
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APRIL 2013


>> ALERT SEC CONFIRMS COMPANIES MAY USE SOCIAL MEDIA TO ANNOUNCE MATERIAL INFORMATION The Securities and Exchange Commission (SEC) clarifies in a recent report that companies may use social media outlets such as Facebook and Twitter to announce material information in compliance with Regulation FD (Fair Disclosure), so long as investors have been alerted as to which social media channel will be used to disseminate this information. BACKGROUND Regulation FD and Section 13(a) of the Securities Exchange Act of 1934 prohibit public companies, or persons acting on their behalf, from selectively disclosing material, nonpublic information to certain securities professionals or shareholders when it is reasonably foreseeable that they will trade on that information, before it is made available to the general public. To comply with Regulation FD, material information must be disseminated publicly, prior to or simultaneously with the selective disclosure, either by filing the information with the SEC on Form 8-K or by “another method (or combination of methods) of disclosure that is reasonably designed to provide broad, non-exclusionary distribution of the information to the public.” In August 2008, the SEC issued “Guidance on the Use of Company Web Sites” (the Guidance), which is directed primarily at the use of issuer websites as a method of disseminating information in compliance with Regulation FD.

THE BOTTOM LINE The SEC’s report helps clarify some uncertainty surrounding how a regulated entity may use social media to disclose material, non-public information and is thus likely to lead more companies to disseminate material corporate information via social media channels. Companies that do so should make sure that use of those channels complies with Regulation FD and Section 13(a).

The Guidance expressed the general principle that compliance with Regulation FD is achieved when a company distributes information “through a recognized channel of distribution.” The Guidance, however, did not explicitly address disclosures made through social media channels. On July 3, 2012, the Chief Executive Officer of Netflix, Inc., Reed Hastings, used his personal Facebook page to announce that Netflix had streamed one billion hours of content in the month of June. Hastings’s personal Facebook page had not been used previously to announce company metrics, nor had Netflix previously informed shareholders that Hastings’s Facebook page would be used to

disclose information about Netflix. The post was not accompanied by a press release, a post on Netflix’s own website or Facebook page, or other SEC filing, such as a Form 8-K. This prompted the SEC’s Division of Enforcement to investigate whether material, non-public information was disclosed, and, if so, whether the use of Facebook for this type of disclosure was in compliance with Regulation FD and Section 13(a). While the SEC ultimately determined not to pursue an enforcement action, the regulator has issued a report to resolve “uncertainty” concerning how Regulation FD and the Guidance apply to disclosures made through social media channels. >> continues on next page

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APRIL 2013

ADVERTISING, MARKETING & PROMOTIONS >> ALERT THE SEC’S REPORT In its report, the SEC confirmed that Regulation FD applies to social media and other emerging means of communication used by public companies the same way it applies to company websites. Importantly, the SEC also made clear that, unless properly handled, communications made through social media channels could constitute selective disclosures. Therefore, these communications require careful Regulation FD analysis. The central focus of this analysis is whether a company has made investors, the market, and the media aware of the channels of distribution it expects to use, so these parties know where to look for disclosures of material information about the company or what they need to do