SEC Issues Guidance for Use of Social Media for Company Announcements

On April 2, 2013, the Securities and Exchange Commission issued a Report of Investigation under Section 21(a) of the 1934 Exchange Act in connection with closing its investigation of Netflix, Inc. and its CEO, Reed Hastings. In doing so, the SEC announced new guidance for making company announcements through social media outlets such as Facebook and Twitter. The SEC’s investigation of Netflix and Hastings arose from a post Hastings made on his personal Facebook page on July 3, 2012. Hastings’ post stated that “Netflix monthly viewing exceeded 1 billion hours for the first time ever in June.” This information was not released by Netflix in an 8-K filing, a press release, or through any other standard distribution channel, and neither Netflix nor Hastings had previously informed investors that information about the company’s metrics would be released on Hastings’ personal Facebook page. Netflix’s stock price spiked upward significantly after Hastings’ Facebook post.

The SEC’s investigation looked at whether Hastings’ Facebook post violated Regulation FD (17 C.F.R. § 243.100, et. seq.). Regulation FD generally requires company to make disclosures of material non-public information in very broad fashion to the market and prohibits selective disclosure, such as to only certain investors or analysts. In August 2008, the SEC issued guidance allowing companies to disseminate information through corporate websites, provided that the company has made its website a recognized channel of distribution, such as by alerting the market that the website would be used for that purpose.

Although it did not bring an enforcement action against Netflix or Hastings, the SEC did not condone “disclosure of material, 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 . . .”  On the other hand, the SEC did not prohibit the use of social media to disseminate material, non-public information, because it recognized the increased public use and acceptance of social media, and wished to encourage communications with investors. The SEC tried to strike a balanced approach by enabling companies to use social media sites provided that they first broadly notify investors through recognized channels about which sites will be used for disseminating information. Going forward, companies that use social media should strongly consider providing notice of which social media outlets they use on corporate websites, SEC filings, or both.