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)

How the JOBS Act Helps Startups With Crowdfunding

President Obama recently signed the Jumpstart Our Business Startups (JOBS) Act which makes it easier for startups and SMB/SME to raise funds online.

Main highlights:

• Small companies can increase their number of shareholders to1,000. This is double the amount that was allowed under the old regulations dating from the 1960s. Small businesses must now file with SEC when they reach 999 shareholders.

• SEC regulations are also loosened to encourage crowdfunding. Small businesses can generate up to $2 million from various small investors.

• Small businesses that want to go public also have it easier now. The ceiling for exception was raised from $5 million to $50 million. The logic behind this change is, that more investments will be made and more jobs will be created.

• Companies are allowed to use advertisements to solicit investors; this was previously forbidden under an SEC regulation.

• Is has become easier for companies to go public sooner. Furthermore, as an “Emerging Growth Company,” a SMB/SME can avoid the bulk of SEC regulations and fees in the first few years of being public.

• Last but not least, the number of shareholders investing in a community bank is increased from 500 to 2,000.

JOBS Act allows companies that raise funds through crowdfunding to sell parts of their company or pay back the money. Before, they had to compensate investors by giving away rewards for different levels of investing. They would give investors a free copy of their product or free use of their software app for a certain period of time. Other companies opted for more creative compensation, such as dinner with the inventors.

With the new legislation, we can expect a slew of new crowfunding portals. If JOBS Act will also be a powerful instrument for creating new jobs remains to be seen.

Is the SEC killing the press release – not likely!

On July, 30 the Securities and Exchange Commission (SEC) published its recommendations for public companies in their efforts to comply with the securities laws “while developing their Web sites to serve as an effective means for disseminating important information to investors”.

It sparked a hot debate among IR and financial PR professionals, who are trying to figure out what the impact is. Many IR/PR agencies make good money writing and distributing press releases on behalf of public companies. Since a public company must announce any change in ownership and significant deals as well as notifications, earnings, profit warnings etc. to the public at large, the financial press release was the only way to go.

By opening the possibility of posting all of the above on a corporate blog, it could mean the “death of the press release” as one PR professional put it. IR and PR circles were abuzz with speculations how the major new distribution agencies such as PR Newswire would take it.

Public companies have been weary of using the Internet as a public space for the dissemination of material information, not in the least since they need to comply with Regulation Fair Disclosure (Reg-FD) and Sarbanes-Oxley (SOX) rules. The SEC is now opening the possible for companies to adhere to regulatory policies without using some of the more traditional methods such as financial press releases. If public companies would opt en masse to use the Web for information distribution, particularly for earnings disclosure, it would have a huge impact on IR and financial PR agencies as well as the newswires.

Thus far, most companies have been leery of using websites to provide investors and other audiences with regulated information, such as earnings.
Beth Harbin, director of PR for Southwest Airlines, is hesitant about changing its current system with PRN, though she acknowledges the positive benefits, which have helped carve out a place for earnings on the airline's website.
"Since we started our... site, we've always had a vision of making it extremely robust," she said. "We currently have earnings up on our website, as part of a system developed through [PRN]," she said. "It also puts that release right in the hands of the reporters who need it."

It is at this moment not clear what the full impact will be. The SEC document seems to indicate that the SEC wants to open the use of public companies’ websites as part of the whole process of disclosing information in accordance with the Regulation FD.

The SEC stated that it “believes that company disclosure should be more readily available to investors in a variety of locations and formats to facilitate investor access to that information. Investors are turning increasingly to electronic media and to company and third-party websites as sources of information to aid in their investment decisions."

It seems that the SEC does recognize a company website as a channel of distribution. The information must be disseminated in such a way, that it is available to the securities marketplace in general.

How can a public company guarantee that? By taking more affirmative steps so that investors and others know that information is or has been posted on the company's website.
Trying to avoid the costs of issuing a financial press release (of which many companies complain), would not only incur alternative costs (e.g., mailing list and distribution + follow up, SEO, administration, legal & accounting department) but could also jeopardize compliance with SOX.
What would therefore be the best option for public companies to ensure the availability of their information to the investor and securities communities? Correct, by sending out their announcement as a press release!

Using (only) their website for announcements will be risky. Companies will need to consider whether the postings on their websites are “reasonably designed to provide broad, non-exclusionary distribution of the information to the public.” This would entail serious organic SEO or in-house website management with tracking and reporting capabilities.

Another issue is the requirement that the website's capability must meet the “simultaneous or prompt timing requirements for public disclosure once a selective disclosure has been made." This puts a strain on a company’s resources. For practical reasons alone, sending a financial press release via the newswire remains the preferred option, since it will be pushed to Yahoo Finance, MarketWatch, MSN, CNNMoney, CNBC, Factiva, Forbes, Fox Business News, Lexis/Nexis, sites operated by major financial institutions and trading firms, blogs etc.

It relieves the public company from the burden to determine whether its website qualifies as a "recognized channel of distribution" and whether web posting achieves simultaneous disclosure. If you are the IR Officer, CFO, CEO or Legal Advisor of such a public company, you would have your work cut out for you, and the SEC doesn’t supply comprehensive guidelines or instructions to that effect.

The SEC's Advisory Committee on Improvements to Financial Reporting states in its final report: "Of course, the increased use of corporate websites is not intended to affect the valuable role that newswires and other news vehicles play in disseminating important company information to investors and the public."

Despite the fear of many IR and PR professionals – the SEC is not killing the press release, it just hands us another IR & PR tool.