#Disclosure

SEC says it doesn’t care how many followers your CEO has

April 2, 2013
April 2, 2013

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The US Securities and Exchange Commission just ruled that public companies can, in fact, disclose new information on social media. But it said that investors can’t reasonably be expected to follow a CEO or other executives for news—no matter how many followers she has—without a heads-up from the company.

“Most social media are perfectly suitable methods for communicating with investors,” said George Canellos, acting director of the SEC’s enforcement division, “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.”

Here’s a PDF of the SEC’s new guidance.

The decision was prompted by a Facebook post made by Netflix CEO Reed Hastings in July 2012, which revealed previously undisclosed data about the company (its hours viewed per month). The question was whether Netflix should have filed that information with the SEC at the same time or whether a Facebook post by Hastings, who now has more than 262,000 followers on Facebook, is sufficiently public disclosure.

In its new guidance, the SEC says that US-listed companies can use social media accounts to disclose information but need to tell investors where to look ahead of time. That’s particularly important, the SEC said, if the disclosure is being made not on the company’s own social media account but that of one of its executives. Here’s the relevant passage (our emphasis):

Although every case must be evaluated on its own facts, 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, 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. This is true even if the individual in question has a large number of subscribers, friends,  or other social media contacts, such that the information is likely to reach a broader audience over time. Personal social media sites of individuals employed by a public company would not ordinarily be assumed to be channels through which the company would disclose material corporate information.

Netflix won’t face any sanctions from the SEC for Hastings’ post, but it sounds like CEOs who did the same thing in the future would. That will impact a slew of social CEOs, like Rupert Murdoch of News Corp. or Elon Musk of Tesla Motors, who frequently discusses his company on Twitter, often driving up the stock price in the process.

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