SEC says it's cool with companies tweeting key info

The agency does an about-face after taking Netflix to task for using social media to release important news. But the 'rules' are murky.

By Jonathan Berr Apr 3, 2013 12:23PM
Smartphone displaying Twitter logo (© Soeren Stache/dpa/Corbis)When Netflix  (NFLX) CEO Reed Hastings took to Facebook (FB) last year to brag that users had viewed 1 billion hours in a single month for the first time, the Securities and Exchange Commission warned the Los Gatos, Calif., company that it might have violated information disclosure rules. The SEC, though, has had a change of heart.

As The New York Times and other media outlets have noted, the agency has decided to allow publicly traded companies to disclose information on Twitter, Facebook and on blogs, provided that they they "inform investors about their social media strategy first." Exactly what that means isn't clear yet.

The whole issue goes back to 2000, when the SEC adopted Regulation FD, for "fair disclosure," after companies were found to disclose market-moving information only to selected analysts. Companies are now required to fully disclose information that would be of interest to investors, such as earnings and management changes, in as broad and nonexclusive a manner as possible. In some cases now, however, companies would be able to meet these requirements using social media.

"Most social media are perfectly suitable methods for communicating with investors, but not if the access is restricted or if investors don't know that's where they need to turn to get the latest news," George Canellos, acting director of the SEC's Division of Enforcement, said in a press release.

Still, this policy raises many questions. Hastings, for instance, is an active user of Facebook, where he has more than 264,000 friends. He clearly wasn't intending to "selectively disclose" anything, and the SEC was right not to penalize him or his company. Standards, though, need to be set.

Would Hastings get in trouble for selective disclosure if he said the same thing to 1,000 followers or even 10,000 followers? Could he have met disclosure standards by making a statement on the Official Netflix Blog, which anyone can read, or Twitter, where the company has more than 297,000 followers? It's unclear.

One can argue that social media is more effective disclosure than conventional press releases because companies are targeting their information to people who are actually interested in receiving it. But it also may enable companies to try to bury bad news on social media, which is clearly what the SEC doesn't want to happen.

Officials at the SEC are obviously trying to catch up with the latest technology and social sharing trends. But companies need to approach social media disclosure cautiously, or they could wind up becoming another test case.

Jonathan Berr does not own shares of the listed stocks. Follow him on Twitter @jdberr.


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