On April 2, 2013, the Securities and Exchange Commission (the “SEC”) issued a report (the “Report”) indicating that companies can use social media, such as Facebook and Twitter, to announce key information in compliance with Regulation Fair Disclosure (“Regulation FD”), provided that investors have been informed of which social media outlet will be used to distribute the information.
Regulation FD provides that when a company (or a person acting on its behalf) selectively discloses material, nonpublic information to securities market professionals, or shareholders where it is reasonably foreseeable that the shareholders will trade on the basis of the information, the company must distribute the information to the public in a manner reasonably designed to be broad and non-exclusionary. To avoid a violation of Regulation FD, public disclosure must occur simultaneously with intentional selective disclosures and promptly following inadvertent selective disclosures.
Company communications made through social media could constitute selective disclosures requiring Regulation FD analysis. The SEC previously issued guidance stating that a company makes a public disclosure through its website, and therefore complies with Regulation FD, when the company’s website is “a recognized channel of distribution.” The Report clarifies that Regulation FD applies to social media in the same way that it applies to company websites. Thus, if a company discloses material, nonpublic information to one or more of the individuals enumerated under Regulation FD, the company must consider whether a social media outlet constitutes a “recognized channel of distribution” sufficient for public disclosure of the information. To make this determination, companies must consider the facts and circumstances of the particular situation, including the non-exclusive factors listed in the SEC’s previous guidance concerning company websites. The central focus, however, is whether the company has sufficiently alerted investors, the market and the media that the company intends to use the specific social media outlet to distribute information, so that these parties know to look to the outlet for company announcements. The Report lists a few ways that companies can make the public aware of its preferred social media outlets, including referring to the outlets in periodic reports and press releases.
Whether Regulation FD has been violated is always a facts-and-circumstances analysis. However, the Report notes that the disclosure of material, nonpublic information on the personal social media site of an individual corporate officer, without advance notice to investors that the site might be used for this purpose, is unlikely to satisfy Regulation FD. If information is inadequately disclosed through social media, the information must be disclosed through another channel that satisfies Regulation FD, such as the filing of a Current Report on Form 8-K.
The SEC issued the Report in the context of an investigation into whether Regulation FD was violated by a company announcement made on the Facebook page of the Chief Executive Officer of Netflix, Inc. For more guidance, read the Report.
This article was prepared by Harva Dockery (harva.dockery@nortonrosefulbright.com or 214 855 8369) and Josh Pleitz (josh.pleitz@nortonrosefulbright.com or 214 855 7428) from Norton Rose Fulbright’s Securities Practice.
In June 2013, Norton Rose and Fulbright & Jaworski L.L.P. will join forces, offering significant depth of experience across the US, Europe, Asia, Australia, Canada, Africa, the Middle East, Latin America and Central Asia.
