SEC Revises Social Media Information Disclosure Rules - In House
In House - The FindLaw Corporate Counsel Blog

SEC Revises Social Media Information Disclosure Rules

Some people put up a Facebook status update about their cats’ latest hairball. Others use it as a medium to mock the Oakland Raiders’ hilariously inept attempts at locating a starting quarterback. Reed Hastings, of Netflix, used his Facebook account to announce that his company had streamed more than one billion hours worth of video in June 2012, reports the Washington Post.

Within a day, Netflix’s stock price shot up - by more than $11 in a single day, and the SEC shot Hastings down - launching an investigation over whether the Facebook post violated SEC rules regarding distribution of important company information.

The rules are in place for a reason -- selective disclosure through obscure channels can be used to either hide information or to provide it to a select group of shareholders who can beat the market with their advance knowledge. It's like inside information for your Facebook friends only.

In 2008, the SEC discovered this "Internet" thing and allowed companies to post important information on their corporate websites, with one caveat: investors must be alerted in advance that the website will be used for that purpose. Simple enough, right? Issue a press release about your company's new site, then post blog-style updates with all information.

Except, some might argue that social media is replacing company-curated sites and blogs. Internet users are becoming more likely to Tweet or update their Facebook status than to update a personal website or blog.

Of course, the difference is, websites are generally completely open and accessible, whereas social media accounts might not be. Websites are as simple as entering a URL (or web address) into your browser. Social media accounts may require sign-ups.

Despite the minor differences, the SEC has once again caught up with society and will allow companies to disclose important information via social media. However, the same caveat applies: investors must be notified in advance that certain social media channels and accounts will be used. Companies may also run into trouble if they use inaccessible services, personal accounts, or obscure mediums (like Friendster).

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