Despite increased public dependence on social media as the principal source of news, until very recently, the Securities and Exchange Commission (SEC) had not provided formal guidance as to whether dissemination of information by a company through a social media site would be considered public dissemination of information. On 2 April 2013, the SEC issued guidance in the form of a Report of Investigation under Section 21(a) of the Securities Exchange Act of 1934 (the ‘Exchange Act’) that indicates that social media channels, like Twitter and Facebook, could be used by public companies to disseminate material information, without running afoul of Regulation FD. While this guidance advances the discussion relating to the use of social media for investor communications, it leaves many unanswered questions for issuers and their counsel to consider closely.
A little history may inform an issuer’s evaluation of its social media policy. In 2000, the SEC adopted Regulation Fair Disclosure (Regulation FD) to level the playing field and eliminate ‘selective disclosures’ by SEC-reporting companies. Regulation FD requires an issuer that shares material nonpublic information with certain individuals, such as investment professionals, to make that information publicly available promptly. When Regulation FD was adopted, the SEC indicated that public disclosure “may be made by filing or furnishing a Form 8-K, or by another method or combination of methods that is reasonably designed to effect broad, non-exclusionary distribution of the information to the public”. At the time, the SEC indicated that “[a]s technology evolves and as more investors have access to and use the Internet”, the SEC might consider a website posting to meet the public disclosure requirements of Regulation FD. Of course, company websites have become useful investor relations tools and many company websites attract significant investor attention. To address the increased use of company websites, in 2008, the SEC issued an interpretive release providing guidance as to whether posting information on a company’s website could be could be considered a sufficient means of public disclosure. The SEC concluded that, in connection with evaluating whether posting information on its website constitutes public dissemination, a company must consider whether: the company’s website is a “recognized channel of distribution”; posting of information on the site disseminates information in a way that makes it generally available; and there has been a reasonable waiting period for the market to react to posted information. To assess whether a website is a recognised distribution channel, the SEC will focus on the steps taken by the company to alert investors and the market that it will use its site to disclose information. In its release, the SEC suggested a number of measures that a company should implement to establish its website as a communications channel, including listing the website url on SEC filings and press releases, establishing a pattern of posting important information on its website, informing investors that important company information will be published on its website, and making information easily accessible on its website and through the use of an RSS feed. The company also should monitor site traffic, and whether information published on its site is being accessed by media and by investors.
In its Report of Investigation, the SEC notes that its 2008 guidance “specifically identified ‘push’ technologies, such as email alerts and RSS feeds and ‘interactive’ communication tools, such as blogs, which could enable the automatic electronic dissemination of information to subscribers”. As such, the 2008 guidance can be extended and applied to social media communications. In some respects, social media tools may be more effective in using push technology than a website, given that, for example, a Twitter message can be pushed to all followers. However, in most cases, social media outlets usually require that an individual affirmatively sign up in order to participate in the communication flow, so the communication is not generally available to the public. Drawing on its earlier guidance, the SEC notes in the Report of Investigation that a company must take adequate steps to alert the market that it intends to use particular social media channels to disclose material, nonpublic information so that investors and others can take the necessary steps to receive and review those disclosures. Addressing the particular facts that gave rise to the investigation, the SEC noted that disclosure of “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 qualify as a method ‘reasonably designed to provide broad, non-exclusionary distribution of the information to the public’ within the meaning of Regulation FD”.
Based on this guidance, a company should consider how it will use social media to supplement or possibly to replace more traditional means of communications. The company then has to take steps to alert the market that it will use selected social media channels to communicate important information. In doing so, a company should consider the steps outlined in the SEC’s 2008 guidance, such as referencing the social media channels in SEC filings and press releases, and disclosing on its website the particular channels that will be used. Once a company has provided notice, it should monitor the extent to which use of these channels are serving their intended purpose by tracking the user traffic. In conjunction with evaluating how it will use social media channels, the company should remind employees of its Regulation FD policy and make certain that it has identified the officers that are permitted to speak on behalf of the company. Postings about the company on the personal social media sites of company officers may be viewed as “selective disclosures” for Regulation FD purposes.
The Report of Investigation is limited in scope, and does not address the special disclosure and liability considerations that may arise in connection with using social media channels. Social media provides an instantaneous means of communication that often encourages a certain informality, which usually will be at odds with the level of scrutiny that typically accompanies the preparation of a press release or SEC filing. As a result, a company should bear in mind that traditional securities disclosure and liability principles apply with equal force to their social media communications.
David Lynn and Anna Pinedo are partners at Morrison & Foerster LLP. Mr Lynn can be contacted on +1 (202) 887 1563 or by email: firstname.lastname@example.org. Ms Pinedo can be contacted on +1 (212) 468 8179 or by email: email@example.com.
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David Lynn and Anna Pinedo
Morrison & Foerster LLP