Online Social Media and SEC Regulations
The use of online social media, such as blogs, Twitter, Facebook and electronic shareholder forums, as a means to interact with the public is becoming more accepted and prevalent in the business community. While online social media provides many benefits, there are potential pitfalls to its use, including federal securities law violations, disclosure of confidential information, and various tort claims, such as invasion of privacy or defamation.
Just like Web sites, online social media can benefit public companies in several areas including advertising, marketing and investor relations. In addition to company-sponsored blogs, employees may also have an interest in, or are already using, online social media to discuss a variety of information from product development to financial or personnel issues. Besides other legal issues and pitfalls, public companies developing a social media policy should consider compliance with Securities and Exchange Commission (SEC) regulations. In particular, Regulation FD (Fair Disclosure) prohibits the selective disclosure of material information.
In August 2008, the SEC issued guidance that primarily addresses (1) when information posted on a company Web site is “public” for purposes of Regulation FD and (2) company liability for information on Web sites. For the first time, the SEC recognized that companies may post information, and have that information be considered “disseminated,” without having to place the same information on a newswire, or file (or furnish) it on a Form 8-K. The SEC guidance also discussed the use of “interactive web-site features,” such as the online social media discussed in this advisory, as a means to disseminate information to the public.
Is the information “public”?
Generally, Regulation FD prohibits selective disclosure of material nonpublic information. The two overarching principles of Regulation FD are: selective disclosure of material information that is already public will not violate Regulation FD, and companies are required to publicly disclose any material information that they disclose selectively.
Rule 101(e) under Regulation FD provides that information can be publicly disclosed by either filing or furnishing a Form 8-K or by disseminating the information through “another method (or combination of methods) of disclosure that is reasonably designed to provide broad, non-exclusionary distribution of the information to the public.” When the SEC first adopted Regulation FD in 2000, it acknowledged that companies may be able to rely solely on the Web to disseminate disclosure at some point in the future. However, it emphasized that Web disclosure alone was not likely to be considered sufficient yet.
The SEC’s guidance set forth three considerations to help determine whether information posted on corporate Web sites is considered “public.” These considerations are:
- Whether a company’s Web site is a recognized channel of distribution;
- Whether information is posted and accessible, and therefore disseminated in a manner calculated to reach investors; and
- Whether information is posted for a reasonable period so that it has been absorbed by investors.
The SEC’s guidance refers to the use of “Interactive Web Site Features,” which include blogs, electronic shareholder forums and other social media. The interpretive release provided that “Since all communications made by, or on behalf of, a company are subject to the antifraud provisions of the federal securities laws, companies should consider taking steps to put into place controls and procedures to monitor statements made by or on behalf of the company on these types of electronic forums.”
The guidance provides clarity with respect to the following issues arising under the antifraud provisions of the federal securities laws as they apply to content, including hyperlinks, posted on company Web sites:
- Previously posted materials maintained on a company’s Web site generally will not be considered reissued or republished for purposes of the antifraud provisions;
- Companies should explain on their Web sites why they include a particular hyperlink, in order to avoid endorsing or approving third-party information and prevent liability for third-party information accessible via the hyperlink;
- Companies should consider using explanatory language to identify summary information in order to avoid violating the antifraud provisions; and
- Statements made on blogs or other interactive Web sites are subject to the antifraud provisions of the federal securities laws, and companies cannot require investors to waive protections under the federal securities laws as a condition of using such interactive Web sites.
The SEC guidance indicates that determining whether information posted on a company Web site is public is a “facts and circumstances” determination. Davis Wright Tremaine attorneys are available to help companies determine whether their Web sites comply with the elements of the test and, if not, what additional steps should be taken to make information posted on their Web sites public.
We can also help companies establish disclosure controls and procedures to monitor statements made by or on behalf of the company on interactive portions of Web sites. Establishing such controls is important since the guidance clarifies that statements made on blogs or other online social media are subject to the antifraud provisions of the federal securities laws.
In addition to the federal securities law obligations discussed in this advisory relating to disclosure controls and procedures, there are many reasons a company should develop a social media policy if it is using this tool to disseminate information. Part of any policy should include requirements for company blogs, electronic forums and other interactive tools that are to be linked to the company’s Web site.
The policy should also deal with what should not be discussed or addressed on employee blogs, “tweets” or Facebook pages, and should incorporate applicable federal securities law obligations governing the dissemination of information for public companies, and where necessary, require the use of standard disclaimers.
If you need assistance developing a social media policy or have any questions about this legal issue, please don’t hesitate to contact a Davis Wright Tremaine attorney. We’d be happy to assist you.