Editors Note: Please welcome our newest contributor, Margie Webber, from our Regulatory Affairs team at RegEd. Margie has followed this story closely - which we first covered here as the story emerged. If you’d like to “health check” your policies and procedures - be sure to see our Social Media Policies and Procedures Compliance Kit.

Is your firm in compliance with Regulation Fair Disclosure (Regulation FD) as it pertains to the use of social media outlets? In accordance with Regulation FD, when an issuer, or a person acting on its behalf, discloses material, nonpublic information to securities market professionals or shareholders where it is likely they will trade on the basis of the information, it must distribute that information in a manner reasonably designed to achieve effective broad and non-exclusionary distribution to the public. The intent is to ensure that all investors have the ability to gain access to material information at the same time. If a firm intentionally discloses material non-public information, they must simultaneously distribute this information to the public. If the disclosure of material non-public information was inadvertent, distribution of the same information to the public must be made promptly afterwards.

Based on its investigation of a Netflix communication made by CEO Reed Hastings on his personal Facebook page, in April 2013 the SEC issued a Report of Investigation making it clear that companies may utilize social media outlets to announce key information in compliance with Regulation FD as long as access to the outlet is not restrictive and investors have been alerted about which social media outlets will be used to disseminate such information.

This report emphasizes the criticality of alerting the market about which forms of communication a firm intends to use for the dissemination of material, non-public information, including SEC filings, website posts and social media outlets, that may be used and the types of information that may be disclosed through these outlets.

• Reminds issuers that disclosures, even if made through evolving social media outlets, must be analyzed for compliance with Regulation FD.
  • Is the communication material and non-public?
  • If so, was the communication disseminated in a manner reasonably designed to provide broad and non-exclusive distribution to the public?

Finally the report clarifies that the SEC’s 2008 Guidance on the Use of Company Web Sites, does not only apply to firm website(s) but is also applicable to current and evolving social media outlets that firms may use to communicate with the public. Ultimately, the SEC decided not to pursue an enforcement action against Netflix. As firms consider employing social media to communicate with the public, ensuring adherence to Regulation FD is paramount.