July 15, 2014
Louis Taubman and Justin Grossman
In our connected world where individuals and companies increasingly use social media as a means of dissemination of corporate information, it is critical that companies and their representatives understand the current rules regarding the use of social media and design a social media policy with those rules in mind.
Before 2013, the Securities and Exchange Commission (the “SEC”) did not provide clear guidance regarding the application of the securities regulations to the disclosure of information through social media. In 2013, the SEC investigated the issues surrounding the use of social media following disclosures of material, nonpublic information by certain corporate officers on their personal social media sites. Following their investigation, the SEC issued a report clarifying the application of existing securities regulations to disclosure of information on social media outlets.
The SEC clarified that the existing regulations do allow companies to use social media outlets like Facebook and Twitter to announce key information; however, the publication must be in compliance with Regulation Fair Disclosure (“Regulation FD”). Regulation FD and Section 13(a) of the Securities Exchange Act of 1934 (the “Exchange Act”) prohibit public companies, or persons acting on their behalf, from selectively disclosing material, nonpublic information to certain securities professionals, or shareholders where it is reasonably foreseeable that they will trade on that information, before it is made available to the general public. When the disclosure of material, nonpublic information is intentional, distribution of the same information to the public must be made simultaneously. When the disclosure of material, nonpublic information is inadvertent, distribution of the same information to the public must be made promptly afterwards. To be in conformity with Regulation FD, companies must distribute material information in a manner reasonably designed to get that information out to the general public broadly and non-exclusively.
In light of the direct and immediate communication from issuers to investors that is now possible through social media channels, such as Facebook and Twitter, companies must take a two step approach to designing their social media policy. First, they must examine rigorously the factors indicating whether a particular channel is a recognized channel of distribution for communicating with investors. Second they must take steps to alert the market about which forms of communication they intend to use for the dissemination of material, non-public information, including the social media channels that may be used and the types of information that may be disclosed through these channels.