Publicly Traded Companies Can Use Social Media to Disclose Material, Non Public Information

By contributor Brittney Trigg: Florida Coastal School of Law JD and business law certificate candidate 2014, law clerk for Law Offices of Xavier Saunders, P.A.

Publicly traded companies can now use social media as a way to disclose material, non public information, and be in compliance with Regulation FD.  The company must give investors proper notice of the site that the company will use to disclose that information. Regulation FD and Section 13(a) of the Exchange Act prohibit public companies or persons acting on their behalf, from selectively disclosing material non-public information to certain securities professionals, or shareholders where it is reasonably forseeable that they will trade on that information, before it is made available to the general public. Regulation FD protects against insider trading.

A publicly traded company must disclose all material information to the public, and for purposes of complying with Regulation FD, a company makes public disclosure when it distributes information “through a recognized channel of distribution.” Instead of disclosure through the usual press release or a Form 8-K, companies can now use channels such as Facebook, Twitter, or other social media websites. The SEC recently launched an investigation of Netflix, Inc. because the company’s CEO, Reed Hastings posted on his personal Facebook page an announcement that Netflix had streamed 1 billion hours of content in the month of June. Neither Netflix, Inc. nor Hastings had previously used Facebook to disclose information. Nor had they informed shareholders that Facebook would be used to disclose information about Netflix.

The post was not accompanied by a press release or a securities filing (Form 8-K). But Hastings claims that his personal Facebook page is readily available to the public, especially because he has over 200,000 followers, and the post was picked up on several blogs and news posts. After the investigation, the SEC liberalized its policy and said that Facebook and other social media websites were in fact a “recognized channel of distribution.”