"While the guidance is not hard to understand, it will be difficult to apply. And the SEC will be looking for someone to cross the line..." - Stephen M. Quinlivan; Leonard, Street and Deinard
Earlier this month, the Securities & Exchange Commission announced that public companies can use social media channels to communicate public disclosures with investors and shareholders. Attorney Felix Shipkevich provides the background:
"At issue is the fair-disclosure rule, which requires companies to disseminate information in a way that would not give an advantage to one group of investors over another. The SEC notes that filing an 8-K form, or holding an earnings call, are both ways to ensure compliance with the regulations. The SEC stated in 2008 that companies could use their corporate home pages, under certain circumstances, to disseminate sensitive information...
The SEC added that updates posted on social media are just as good as news releases and company websites — given that the companies have alerted investors as to which outlets they plan to use."
The new rules on corporate social media use will certainly require clarification. From attorney Catherine Foti of Morvillo Abramowitz:
"The Report offers no guidance as to how the actual medium used affects the Fair Disclosure analysis. Twitter, for example, limits tweets to just 140 characters and the limit is further decreased if the tweet includes a URL. The SEC does not address this limitation and how it – and the limitations of other social media channels – may affect the accuracy of issuers’ tweets… [A]dditional direction is necessary to clarify how these mediums can be used accurately and effectively."
In the meantime, what to make of the SEC's social media guidance for corporate disclosures?
From attorneys on JD Supra, here's the Legal Perspective:
1. Only use social media if your investors follow you there:
Dean Hanley of Foley Hoag: "Two big caveats apply: First, if a company does not have good reason to believe that its social media outlets are widely followed, use of them may not constitute adequate public distribution for the obvious reason that the audience is not big enough or broad enough. Second, the SEC frowned on company disclosures via the social media accounts of individual corporate officers 'without advance notice to investors that the site may be used for that purpose.'"
2. If individual corporate officers are involved, provide advance notice to all investors:
Meredith Francis of Womble Carlyle: "[T]he SEC made it clear that distributing information on the personal social media site of an individual corporate officer, without advance notice to investors that the site may be used for disclosure of material, nonpublic information, is unlikely to satisfy Regulation FD, even if the officer has a large number of followers on the social media site, because, absent such notice, such disclosures would not satisfy the public disclosure required under Regulation FD."
3. As you share on social media, share elsewhere, too:
Wai Choy of Proskauer: "The first step of the analysis is to determine whether any potential recipient of the social media post is a shareholder, securities professional, or other type of person enumerated in Reg FD. Due to the open-ended accessibility of social media, this is likely to be the case. If so, and the information is material and nonpublic, the information must either be simultaneously filed in a Form 8-K or disclosed in a manner 'reasonably designed to provide broad, non-exclusionary distribution of the information to the public.'"
4. Make it very easy for all investors to "follow" your social media channels:
J. Quinn of Dinsmore & Shohl: "Going forward, if a public company intends to use social media as a channel for corporate disclosure, they should identify the specific social media channels on their website and provide information on the steps that investors or the market need to take (e.g. subscribing, registering, ‘following’ or ‘liking’) to receive those disclosures. Additionally, while transitioning to using social media as a distribution channel for corporate disclosure, cross-posting the information directly to the corporate website is recommended."
5. Create policies and procedures, train your people:
Bonnie Roe of Cohen & Gresser: “[A]ll companies need to develop clear policies and procedures for its use and to make clear the legal implications if these policies and procedures are not followed.”
Travis Crabtree of Looper Reed: “Everyone should be trained, or at least aware of the social media policy. Reg FD really applies only to persons acting on behalf of the issuer or company which includes ”any senior officer of the issuer or any other officer, employee, or agent of the issuer who regularly communicates with securities market professionals or with security holders.” These folks also need to be aware of the company’s Reg FD policy and training.”
6. Be thoughtful and consistent. (aka: Don't game the system):
David Smyth of Brooks Pierce: "“[T]he ship has sailed on SEC enforcement actions against companies who thoughtfully (1) let investors know to expect to see corporate information on particular social media sites; (2) post information with some regularity; and (3) do not try to game the system with posts on obscure accounts. I cannot imagine the Enforcement Division wanting to take a case with those facts to a jury.”
7. Remember that there are still other rules to follow:
Jill Radloff of Leonard, Street and Deinard: "Just because the SEC says it is OK in some circumstances doesn’t mean that the NYSE thinks it’s always a good idea. As Broc Romanek points out on TheCorpororateCounsel.net, the NYSE recently sent listed companies a letter reminding them while Reg FD channels are great and required, you still have to give the NYSE advance notice before the release of material news, whether on Twitter or Facebook or by traditional press release.”