On April 2, the Securities and Exchange Commission issued a Report of Investigation to clarify that a public company may disclose material information via social media outlets such as Facebook and Twitter. However, to comply with Regulation FD the company must first fully inform investors about which social media channels it will use and the type of information that will be disclosed, consistent with the SEC staff's 2008 Guidance on the Use of Company Web Sites.
The Netflix Report of Investigation
The SEC's inquiry, described in the report, related to a posting by Netflix CEO Reed Hastings on his personal Facebook page. On July 3, 2012, Mr. Hastings' post stated, "Netflix monthly viewing exceeded 1 billion hours for the first time ever in June." Netflix did not file a Form 8-K with the SEC, issue a press release or publicize this information in any other manner. Although Mr. Hastings' Facebook page had more than 200,000 subscribers, neither Netflix nor Mr. Hastings had before used Mr. Hastings' personal Facebook page to provide significant information about Netflix.
Investors gradually became aware of the information posted by Mr. Hastings on his Facebook page, when various sources publicized the news. As a result, Netflix's stock price rose from $70.45 at the time of Mr. Hastings' post to $81.72 at the close of trading the next day.
Both Hastings and Netflix asserted that the Facebook post did not contain material information and, in addition, because it was broadcast to more than 200,000 Facebook users, the post did not constitute selective disclosure.
In its report, the SEC stated that although potential Regulation FD violations are assessed on a case-by-case basis, under similar facts, this type of disclosure "is unlikely to qualify as a method 'reasonably designed to provide broad, non-exclusionary distribution of the information to the public' within the meaning of Regulation FD." However, the SEC determined not to pursue an enforcement action against Mr. Hastings or Netflix because it recognized the market was uncertain about Regulation FD's application to social media use. The SEC instead sought to clarify its social media policy in the report.
Regulation FD requires companies to make broad and non-exclusionary disclosure of material information to the public. The purpose of Regulation FD is to provide all investors with equal and timely access to the same information. The report clarifies that social media is merely an extension of technologies like e-mail alerts, RSS feeds and blogs -- technologies identified in the SEC's 2008 Guidance on the Use of Company Web Sites. Accordingly, the report states that Regulation FD applies to social media in the same way it applies to company websites. The report further provides that the 2008 Guidance governs a company's proper use of social media and that such social media must be a "recognized channel of distribution" used to communicate with investors. To determine whether a social media outlet is, in fact, a "recognized channel of distribution," a company must carefully consider the non-exclusive list of factors enumerated in the 2008 Guidance. Such factors include:
Further, the SEC has cautioned companies that a "deviation from their usual practices for making public disclosure" may impact the SEC's assessment of whether actions taken were reasonable to ensure broad and non-exclusionary distribution to the public.
In the report, the SEC emphasized that a company that wishes to use social media channels to disseminate material, nonpublic information should, in advance, alert its investors, the market and the media as to (1) which forms of social media channels it expects to use, and (2) the types of information that may be disclosed through these social media channels.
David Waizer was quoted in an article, Venture Capital Exec Returns To Day Pitney As Partner, published in Law360.
Day Pitney Press Release
Michael Rave was quoted in an article, "Why Small Banks Are Rushing to Issue Subordinated Debt," in American Banker. Community banks are taking on more subordinated debt because interest payments are tax-deductible and the issues help bolster Tier 2 capital ratios, explains Rave in the report. Most buyers are pension funds, mutual funds and other community banks. "There's a lot of interest in them from institutional investors and investment banks are really pushing it," said Rave.
Stamford, Conn., August 24, 2015 - Day Pitney is pleased to announce that 68 attorneys have been selected for inclusion in the 2016 Best Lawyers in America. Best Lawyers ranks lawyers through peer-review surveys, and has been published annually since 1983.