On Tuesday, April 2, 2013, the U.S. Securities and Exchange Commission (SEC) issued a report of investigation (Report), which clarifies that public companies can use social media outlets like Facebook and Twitter to announce key information in compliance with Regulation Fair Disclosure (Regulation FD), provided that investors have previously been alerted about the social media outlet that will be used to disseminate such information.
The Report stemmed from an investigation conducted by the SEC’s Division of Enforcement into a post made by the CEO of a public company on his personal social media account to convey company information that was not otherwise made publicly available. Due to the increased use of social media and the uncertainty existing in the market concerning how Regulation FD and the SEC’s prior Guidance on the Use of Company Web Sites (2008 Guidance) apply to disclosures using social media channels, the SEC issued the Report to provide public companies with further guidance.
There are two general principals stated in the Report that each public company should be aware of:
First, issuer communications through social media channels require careful Regulation FD analysis comparable to communications that are made through more traditional channels, such as SEC filings, press releases and corporate websites; and
Second, the principles outlined in the 2008 Guidance — including the concept that the investing public should be made aware of the channels of distribution a company intends to use to disseminate material information — apply with equal force to public company disclosures made through social media channels.
Compliance with Regulation FD requires companies to distribute material information in a manner reasonably designed to disseminate that information to the general public broadly and non-exclusively. Regulation FD is intended to ensure that all investors have the ability to gain access to material information at the same time. The Report confirms that Regulation FD applies to social media and other emerging means of communication used by public companies in the same manner and to the same extent that it applies to company websites and other more traditional means of communicating material information.
The Report clarifies that public company communications made through social media channels could constitute selective disclosures and, therefore, requires careful Regulation FD analysis to avoid one group of investors having access to information prior to other investors. The Report identifies that disclosure of material, nonpublic information on the personal social media site of an individual corporate officer — without advance notice to investors that the site may be used for this purpose — is unlikely to qualify as an acceptable method of disclosure under the federal securities laws. Personal social media sites of individuals employed by a public company would not ordinarily be assumed to be channels through which the company would disclose material corporate information. Companies should adopt social media policies which address, what if anything, is permissible conduct for corporate officers.
Applicability of the 2008 Guidance to Social Media
The 2008 Guidance was directed primarily at the use of company websites as a method for public companies to disseminate information in compliance with Regulation FD. The 2008 Guidance explained that for purposes of complying with Regulation FD, a company makes a public disclosure when it distributes information “through a recognized channel of distribution.” The 2008 Guidance offered a non-exhaustive list of factors to be considered in evaluating whether a company website constituted a “recognized channel of distribution,” including:
- whether and how the company lets investors and the markets know that the company has a website and that the public should look at the company’s website for information,
- whether the company has made investors and the markets aware that it will post important information on its website and whether the company has a pattern or practice of posting such information on its website,
- whether the information is prominently disclosed on the website in the location known and routinely used for such disclosures, and whether the information is presented in a format readily accessible to the general public,
- whether the website is designed to lead investors and the market efficiently to information about the company,
- the extent to which information posted on the website is regularly picked up by the market and readily available media, and reported in such media, or the extent to which the company has advised newswires or the media about such information and the size and market following of the company involved,
- the steps it has taken to make its website and the information accessible,
- whether the company keeps its website current and accurate,
- whether the company uses other methods in addition to its website posting to disseminate the information and whether and to what extent those other methods are the predominant methods the company uses to disseminate information, and
- the nature of the information.
Whether a company’s website is a recognized channel of distribution primarily depends on the company’s efforts to make investors and the market aware that it intends to use the website to disclose material information. Some recommended options for accomplishing this included:
- regularly disclosing in periodic reports, proxy statements and other shareholder communications and press releases that information will be posted on the company website and that the company regularly uses its website as a key source of company information,
- notifying newswires and the media that the company posts information on its website, and
- prominently displaying investor-related information on the website.
Similarly, the Report advises that companies intending to use specific social media channels as a method of corporate disclosure should provide appropriate notice to investors and thoroughly examine the factors indicating whether a particular channel is a “recognized channel of distribution” for communicating with their investors. The required notice to investors can be accomplished by including disclosures on the company’s website identifying the specific social media channels a company intends to use for the dissemination of material non-public information. This would give investors and the markets the opportunity to take the steps necessary to be in a position to receive important disclosures —e.g., subscribing, joining, registering, or reviewing that particular channel. The SEC emphasized that the steps taken to alert the market about the forms of communication a company intends to use for the dissemination of material, non-public information, including the social media channels that may be used and the types of information that may be disclosed through these channels, are critical to the fair and efficient disclosure of information.
Prior to using social media channels to disseminate material information to the markets, we recommend that a company:
- review its existing policies and procedures for communicating with investors and update those policies to establish procedures for using social media,
- provide clear guidelines on the corporate and personal use of social media, which presumably will be embodied in a social media policy, and
- authorize specific officers to communicate using social media on behalf of the company and specify the circumstances when social media may be used, which also presumably will be embodied in a social media policy.
Once a company’s policies and procedures are in place, it should condition the market to its intention to disseminate information through social media outlets by identifying the social media outlet or outlets the company intends to use through press releases, filings with the SEC and its corporate website. Taking these steps prior to using social media will allow the company to mitigate potential Regulation FD violations when utilizing social media as a channel for disseminating material information.
The full text of the Report is available at: http://www.sec.gov/litigation/investreport/34-69279.pdf
We are available to answer any questions that you may have on the Report and how your company can comply with the guidelines set forth in the Report for using social media to communicate with investors.