More on the SEC Giving a Thumbs Up to Social Media for Reg FD

Andrew Klips  |

On April 2, the Security and Exchange Commission issued a report saying the companies can use social media websites like Twitter, Facebook (FB) and LinkedIn (LNKD) to announce material information in compliance with Regulation Fair Disclosure “so long as investors have been alerted about which social media will be used to disseminate such information.” Basically, the SEC expanded upon 2008 guidance allowing corporate websites as meeting Reg FD, now saying that popular social media platforms are an extension of a corporate website as a medium for communicating with the general population as long as investors are told where to look for the information without discrimination (i.e. can’t be posted on a pay site to give some investors access to information and not others).

In Tuesday’s report, George Canellos, Acting Director of the SEC’s Division of Enforcement, specified, “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.”

This fire has been smoldering for years as social media blossomed into the beast that it is, but it had gas dumped on it last year when Netflix (NFLX) chief executive Reed Hastings posted on Facebook that monthly online viewing of Netflix surpassed one billion hours for the first time ever, without any 8-K filing or mention on the corporate website. Shares of NFLX rose 16 percent in a day following the Facebook post.

Tesla (TSLA) CEO Elan Musk stoked the fire on March 25 by tweeting that the company had “really exciting” news coming. Volume picked-up and shares of TSLA climbed after Musk’s tweet.

Neither exec received any enforcement action from the SEC.

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There is still a grey area here regarding the use of social media and companies will likely move forward with baby steps at first. To make a simplistic analogy, if kids are told to never go outside and then one day a door is left open and they are told “go ahead;” there could be some trepidation as to what lies beyond and clear cut rules about crossing over.

Biotechnology firms have long been weary of social media because the FDA has made it perfectly clear that a “fair balance” must be maintained about the drugs or technology. Ever seen a TV commercial on a drug that doesn’t spend more time talking about he possible side effects than the actual benefits? Kinda hard to put all of that into a 140 character tweet without wondering if there will be repercussions for not having a “fair balance” of information.

Now that the SEC has given the official thumbs-up to social media, companies will likely start testing the water as to what meets compliance. Communications expert KCSA Strategic Communications’ CEO Jeff Corbin presented some valuable thoughts on the matter in a blog post on Wednesday, detailing that there is still some ambiguity in the SEC verbiage.

Corbin also states that “public companies should no longer refrain or be concerned about communicating important information via social media channels like Facebook and Twitter.” He does explain, though, that certain practices, such as regulatory filings as to how the company will use social media, should be adopted to be safe and that the SEC needs to further delineate the rules.

New research by KCSA showed that 77 percent of the surveyed chief financial officers and IR professionals at Fortune 1000 companies didn’t think the SEC provided enough information on disclosing material information through social media.

It still is a work in progress obviously, but the SEC did companies and investors a favor with its statement on Tuesday.

It’s interesting to think about news wires and how this could effect them or how companies will utilize the new social media freedom to shape their corporate appearance, but that’s a whole different topic. Let’s just enjoy the moment for now.

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