Social Media can now be used for Public Disclosure

Grete Chan, 4 April 2013

social-networks

The US Securities and Exchange Commission (SEC) finally passed a long-awaited decision to recognize social media as a valid form of communication to investors. The only condition is that they must make their investors aware of their intention to use social media to make announcements well in advance.

This debate arose when Netflix CEO, Reed Hastings, made an announcement on Facebook which the SEC alleged to be material information which was not disclosed in accordance to Regulation FD.  Regulatory wise, this rule exists to prevent company announcement of “material information” in an unfair and limited way, which has the potential to move its stock price to the limited few investors who saw the news.

Regulation FD requires that companies must distribute a press release through a “widely disseminated” news or wire service or another “non-exclusionary method of disclosure”. The material information should be disclosed at the same time to all investor.

The SEC report published on Tuesday confirmed that the agency did not allege wrongdoing or recommend an enforcement action against Hasting.

While this is a victory for many tech companies who advocated the use of social media and even company websites to make disclosures to their investors, the SEC cautioned,

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.

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Related Articles:

The Social Media and Public Disclosure Debate

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