Regulation FD requires companies to make announcements of material information to all investors at the same time.
Adopted in 2000, the regulation is intended to help insure that all investors receive equal access to information. Technology has changed dramatically since 2000. In December, 2012 the SEC sent a Wells Notice to Netflix and Reed Hastings, its chief executive, because Hastings made a Facebook post congratulating his team for reaching one billion hours of video that subscribers watched the previous month. The message was just 43 words, and contained information that had already been publicly discussed. Not to mention that Hastings had over 200,000 followers. The SEC Staff considered that post to be a violation of Regulation FD.
I discussed the Hastings Wells Notice back in December, and disccused securities disclosure and social media in January. The decision to pursue Netflix and Hastings was questioned by many commentators, including yours truly. I was actually a bit surprised that the Commission would take such a position, given its history of being at the forefront of adapting regulations to advancing technology (at least the forefront in the securities industry. Additionally, while I do not believe the number of followers is dispositive of the issue, the information had been publicly discussed, 200,000 followers, many of whom are investors and reporter, is not insignificant, and the fact that Netflix customers viewed one billion hours of video hardly seems to be material.
The Commission itself has reviewed the matter and on April 2 issued a press release stating that “companies can use social media outlets like Facebook and Twitter to announce key information in compliance with Regulation Fair Disclosure (Regulation FD) so long as investors have been alerted about which social media will be used to disseminate such information.”
The press release links to a “report of investigation” which details the activity of the Commission after the Staff issued the Wells Notice. It seems that the Commission conducted its own investigation after its Staff conducted an investigation. Curious, but an effective way to side-step the Staff who issued the Wells Notice. Keep in mind that a Wells Notice comes AFTER an investigation, and AFTER the SEC Staff decides to bring an action.
At the same time it is heartening to see the Commission not simply rubber-stamping the Staff’s recommendation, and conducting its own review. The dissemination of information is important to investors and the securities industry, and new methods of communication should be encouraged and not over regulated into disuse.
The Commission's press release, SEC Says Social Media OK for Company Announcements if Investors Are Alerted, and the SEC Report of Investigation Pursuant to Section 21(a) of the Securities Exchange Act of 1934: Netflix, Inc., and Reed Hastings are at the Commission's website.
If you have any questions about the interaction of social media and the securities laws, send me an email let's see if I can help. I have been providing legal advice on securities matters for over 25 years, have been providing advice on web sites and uses of the Internet for nearly 15 years, which includes use of Facebook, Twitter and LinkedIn by financial professionals. You can follow this blog (with over 10,000 subscribers) on Twitter, and Facebook, as well as my firm's Twitter and Facebook accounts.