Sunday, April 21, 2013

SEC Accepts Social Media for Disclosing Material Information

The SEC has officially announced that posting corporate information on social networking sites such as Facebook and Twitter are equal to releasing information via a news release and on the corporate website. In general, the SEC stipulates that companies must make material information available to all investors simultaneously via SEC filing or press release.

The SEC made the move following an investigation into the Facebook posting of Netflix CEO Reed Hastings. He bragged that his company's monthly viewing had exceeded one billion hours for the first time. As a result of posting this information on Facebook, Netflix stock promptly closed higher during that trading day.

The SEC decided to loosen its rules for disclosing information and decided not to start any proceedings against Hastings.

Although this is in itself good news, it is not as straightforward as it looks. The catch is that a company must tell its investors which outlets it is intending to use. Ironically enough, the best way to do this is via a press release!

The SEC announcement gives companies more channels to disseminate news. As I see it, a publicly-traded company cannot replace press releases with postings on Facebook and Twitter. Furthermore, the legal department of the company needs to review any posts concerning the company before posting them.

My advice? Be wise! Use official news distribution channels such as PRNewswire to inform your investors, customers and the public at large. Before distributing a press release, the legal department of PRN reviews it and will therefore ensure that your press release complies with the SEC’s rules and regulations. This also means that a CEO cannot “brag” anymore, but needs to state the (dry) facts. 

Companies also need to learn how their investors want to receive news. Not everybody uses Facebook and Twitter, and even if they do, they normally use it for informal purposes. Especially institutional investors will find news the old-fashioned way (using EDGAR, checking press releases and corporate websites), since that’s the way they research and keep up. Private investors (especially those interested in penny stocks) are more likely to embrace Facebook and Twitter for updates and news.

The SEC did not specify what steps a company needs to take for using Facebook, Twitter, et al. It is also unclear what is material information and what not.

Until the SEC formulates strict guidelines, my advice for companies:

1) Write an official press release
2) Have it approved by the legal department
3) Distribute it via PRN et al + post it on the corporate website
4) Post the press release on the company’s Facebook page, Twitter account, LinkedIn page, Pinterest account.
5) Put it on your corporate blog

(Image courtesy of dailyfinance)

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