SEC gives nod to use of social media under Regulation FD – if done correctly

Abstract

Purpose – The purpose of this paper is to analyze a recent US Securities and Exchange Commission Report of Investigation that concluded an investigation by the SEC Division of Enforcement into whether Netflix, Inc. and its chief executive officer violated Regulation FD through the use of the CEO's personal Facebook page to announce a company metric, and provide guidance with respect to the application of Regulation FD and the SEC's 2008 Guidance on the Use of Company Web Sites to disclosures made through social media channels. Design/methodology/approach – The paper explains the background of the SEC's investigation of Netflix and its CEO, Regulation FD and the 2008 Guidance, applies the principles of Regulation FD and the 2008 Guidance to social media disclosures by public companies, and recommends compliance measures companies may wish to consider in implementing social media strategies. Key issues covered are whether a social media communication is made via a recognized channel of distribution and disseminated in a manner that makes it available to the securities marketplace in general, and whether a reasonable waiting period has elapsed to allow investors and the market to react to the communication. Findings – While the Report of Investigation reflects the SEC's recognition of the increased use and importance of social media channels, it does not fundamentally change the regulatory framework for analyzing Regulation FD compliance set forth in the SEC's 2008 Guidance on the Use of Company Web Sites. Practical implications – Companies contemplating social media use for Regulation FD purposes should apply the principles outlined in the 2008 Guidance, including informing investors of the channels they intend to use and the types of information that may be disclosed, and considering whether and when the information has been broadly disseminated, but should also consider the pros and cons of social media use from an investor relations perspective. Originality/value – The paper provides expert guidance from experienced financial services lawyers.