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Focus on Regulation

SEC Clarifies Stance on Social Media Disclosures

The SEC has issued a report clarifying that companies can use social media to announce key information without violating Regulation FD, provided they alert investors about which social media outlets they will use for their disclosures.  The SEC report stems from an investigation into a 43-word message that the CEO of Netflix, Reed Hastings, posted on his personal FaceBook page in July 2012.  The post announced that Netflix had, for the first time ever, streamed more than one billion  hours of content during the preceding month.  The SEC launched an inquiry into whether the post may have violated Regulation FD, which prohibits  public companies, or persons acting on their behalf, from selectively disclosing material, nonpublic information to certain third parties before it is made available to the general public.

The report—which notes that the SEC has decided not to pursue enforcement action against Hastings or Netflix—acknowledges that there is uncertainty concerning the application of Regulation FD and the SEC’s 2008 Guidance on the Use of Company Web Sites to social media.  The report confirms that the principles outlined in the 2008 Guidance—particularly the requirement to notify the investing public of the distribution channels a company will use to disseminate material, nonpublic  information—apply equally to disclosures made through social media channels.  The report encourages companies to identify on their corporate web sites the specific social media channels that they intend to utilize for the dissemination of material nonpublic information to give investors and the market the opportunity to take steps necessary to subscribe to, join, register for or review that channel.  The report also notes that, although every case must be evaluated on its own facts, the 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 meet Regulation FD requirements even if the individual has a large number of subscribers, friends or other social media contacts.