Fifteen years ago, the U.S. Securities and Exchange Commission established Regulation FD, 17 C.F.R. § 243 – a rule intended to combat the practice of “selective disclosure” of key information to analysts or institutional investors before it is announced to the general public. ((Final Rule: Selective Disclosure and Insider Trading, Release Nos. 33-7881, 34-43154, IC-24599, 17 C.F.R. pts 240, 243 & 249 (Aug. 15, 2000) [hereinafter “Adopting Release”].)) Under Regulation FD, where an issuer “discloses material nonpublic information” to certain parties, such as securities professionals, that issuer must either “simultaneously” or “promptly” publicly release that information. ((17 C.F.R. § 243.100 (2000).)) Regulation FD encourages fair markets by requiring that individual investors and larger players receive key information at the same time.
In its adopting release, the SEC noted that shareholders’ rapid adoption of online technology “has created a greater demand, expectation, and need for direct delivery of market information.” ((Adopting Release at II.A.1.)) In its subsequent guidance on Regulation FD, the SEC has encouraged issuers to communicate with the public through online channels. ((See Commission Guidance on the Use of Company Web Sites, Release Nos. 34-58288, IC-28351, 17 C.F.R. pts 241 & 247, at 4 (Aug. 1, 2008) [hereinafter “SEC 2008 Guidance”]; Report of Investigation Pursuant to Section 21(a) of the Securities Exchange Act of 1934: Netflix, Inc. and Reed Hastings, Exchange Act Release No. 69279 (April 2, 2013) [hereinafter “SEC 2013 Report”]; SEC Press Release: SEC Says Social Media OK for Company Announcements if Investors Are Alerted (April 2, 2013) [hereinafter “SEC Social Media Press Release”].))
In 2008, the SEC issued guidance on publicly traded companies’ use of their web sites to disseminate key information. In this report, the SEC explained that because “we now believe that technology has evolved and the use of the Internet has grown such that . . . posting of the information on the company’s web site, in and of itself, may be a sufficient method of public disclosure” – if the company’s web site is a “recognized channel of distribution.” ((SEC 2008 Guidance at 25.))
In 2013, the SEC gave publicly traded companies permission to use social media outlets such as Facebook and Twitter to announce key information under Regulation FD – “so long as investors have been alerted about which social media will be used to disseminate such information.” SEC Social Media Press Release. The SEC noted that “public companies are increasingly using social media to communicate with shareholders and the market generally,” and that, “[l]ike web sites, corporate social media pages are created, populated, and updated by the issuer.” ((SEC 2013 Report at 6.)) A social media channel may be used for investor communications if it is a “recognized channel of distribution” and if issuers “alert the market about which forms of communication” are to be used to disseminate material information. ((SEC 2013 Report at 7.))
The SEC’s policies with respect to Regulation FD indicate its openness to online channels of communication as a means of maintaining fair markets. In its 2008 guidance, the SEC noted that “one of the key benefits of the Internet is that companies can make information available to investors quickly and in a cost-effective manner,” that “[i]nvestors are turning increasingly to electronic media and to company and third-party web sites as sources of information to aid in their investment decisions,” and that “widespread access to company information is a key component of our integrated disclosure scheme, the efficient functioning of the markets, and investor protection.” ((SEC 2008 Guidance at 6-8.)) Allowing companies to disclose material information through their web sites is a way to give shareholders prompt and consistent access to key developments. Permitting the use of third-party social media outlets to disseminate key information might ultimately serve the same ends – but investors and companies should proceed with caution. My next blog post will discuss the SEC’s approach to the use social media with respect to Regulation FD, as reflected in its 2013 report.