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Augmented Legality
Blogs | May 31, 2011
3 minute read
Augmented Legality

Public Companies, Social Media, and SEC Regulation FD

Public companies are using social media to amplify the impact of their public statements and increase shareholder engagement. For example, companies are “live tweeting” (i.e., posting updates to Twitter in real time as an event is happening) their earning calls and annual meetings. A social media site called StockTwits curates such information in real time. Several well-known companies have adopted StockTwits as an official IR channel.  Companies are also posting links to Form 8-Ks and press releases, and sharing video interviews of executives discussing earnings information.

According to one 2010 study of 326 public companies, 65% are using Twitter to conduct shareholder outreach; 37% are using Facebook; 29% are using YouTube; and 10% make use of a corporate blog for investor relations. A significantly higher percentage of companies have accounts with such websites, and 93% of public companies had a company page on LinkedIn. Further, 62% of companies reference social networks on their investor relations website. The highest use of social media for investor relations was among companies in the technology, services, natural resources and consumer goods industries.

Can such activity violate SEC regulations?  SEC Regulation FD provides that when an issuer discloses material nonpublic information to certain individuals or entities—generally, securities market professionals, such as stock analysts, or holders of the issuer's securities who may well trade on the basis of the information—the issuer must make public disclosure of that information.

According to 2008 guidance issued by the SEC, corporate websites can potentially qualify as a mechanism for public release under Reg FD, if the website is recognized by the public and media as a channel of distribution, and it actually provides such information in a public manner. These guidelines are a helpful starting point when evaluating social media.  But websites are passive resources that a user must visit, as opposed to the more proactive nature of social media sites, which “push” information into a user’s news feed. Therefore, there is no clear guidance on whether and how social media sites can be compliant means of distributing financial information.

Premature disclosures online have already caused a number of high-profile incidents. Even if social media posts merely amplify other distribution channels, the timing of the posts must be coordinated. Social media happens in real time, but PR newswires typically incorporate an 80-second latency.  One company, for example, inadvertently released a video interview that contained financial information before the information was officially released.

Companies can face liability for republishing data. It is common on Twitter to “retweet,” or republish, another user’s post. When the post is a financial analyst’s report, however, a company could be held to adopt the data by retweeting it. Reg FD allows old data to be compiled on a company’s website, but posting that information in social media without disclaimers can be misleading.

A company is also likely to selectively post only positive information about itself. This could be an obstacle, however, to the social media account being considered an approved distribution channel under Reg FD.

Often, the employees responsible for posting to social media are not trained in regulatory compliance. They may need to be trained, and perhaps monitored, by counsel.  Companies that engage in social media, especially if they do so for IR purposes, should consider evaluating and updating their insider training and corporate communication policies in light of the unique opportunities and challenges that these sites present.