SEC issues new report on using social media to connect with investors


Every public company has a duty to make certain disclosures to investors. Many companies are now turning to the power of social media to connect with investors and keep them informed.

But what are acceptable best practices for companies that choose to disseminate information via social media? In an April 2 announcement, the U.S. Securities and Exchange Commission outlined a new report offering guidance to companies that wish to connect with investors through Facebook, Twitter and other social media outlets.

Material information must be distributed uniformly to investors

The SEC's Regulation Fair Disclosure is a law that pertains to how companies distribute information to the public. When a company releases information that is material to the general financial health of the organization, it must be distributed widely and nonexclusively. It is only fair that investors have access to information that may affect their investment at the same time as their peers, and Regulation Fair Disclosure maintains this level playing field.

Social media is a relatively new tool in terms of its use to communicate with investors; even for company websites, it was not until 2008 that the SEC offered guidance clarifying that a website could be an effective means of disseminating information to investors. As such, the ambiguity surrounding social media and the Regulation Fair Disclosure is not surprising.

Enter Reed Hastings. Hastings is the CEO of Netflix – and also an active user of social media. After learning that the Netflix monthly online viewing surpassed one million hours, a new record for the company, Hastings celebrated with a Facebook posting. The problem? The posting was on his personal Facebook page, a resource Hastings had not previously used to communicate information about Netflix to investors.

Shortly after the information was released on Hastings' Facebook page, the price of Netflix stock soared by more than 15 percent. The SEC began an investigation. While the agency stopped short of alleging intentional misconduct, it was clear that they needed to address the uncertainty about the Regulation Fair Disclosure as applied to social media.

In the resulting SEC report, the agency noted that behavior like Hastings' would likely not be a proper release of information. Had the company told investors that Hastings' Facebook site was going to be used for the purpose of disseminating material information, then the disclosure may have passed muster under the Regulation Fair Disclosure. But, without that critical element of advanced notice, a personal Facebook page is not the place to disclose important nonpublic information.

"One set of shareholders should not be able to get a jump on other shareholders just because the company is selectively disclosing important information," George Canellos, Acting Director of the SEC's Division of Enforcement said in an official agency press release. "Most social media are perfectly suitable methods for communicating with investors, but not if the access is restricted or if investors don't know that's where they need to turn to get the latest news."

Were you misinformed as an investor? Contact a securities litigation attorney

Whether leveraging social media or some other means of communication, one thing made perfectly clear by the recent SEC report is that companies must have a protocol in place to keep investors up to date on material developments. Any failure to do so can be a legally actionable omission from the standpoint of investors.

If you believe that you have not been provided with all the material facts about an investment, seek the advice of an experienced securities litigation attorney. Your attorney can help you assess your case and pursue the compensation to which you are entitled.

Schedule a free initial consultation by calling Shustak Reynolds & Partners, P.C. toll free at 888-748-8748, or contact us online

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