Social media disclosures of 'material' information for investors can be legitimate, says US regulator

The Securities and Exchange Commission (SEC) said that companies could release such information through channels like Twitter and Facebook as long as doing so was in line with a stated social media strategy.

US rules prohibit public companies, or those acting on its 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," according to SEC. The regulator has previously issued guidelines that explain that such disclosures must be made through a "recognised channel of distribution".

SEC said it now accepted that social media channels could be used to make such disclosures. (8-page / 58KB PDF)

"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, we expect issuers to examine rigorously the factors indicating whether a particular channel is a 'recognized channel of distribution' for communicating with their investors," SEC said in a new report.

"We emphasise for issuers that the steps taken to alert the market about which forms of communication a company intends 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, are critical to the fair and efficient disclosure of information," it said. "Without such notice, the investing public would be forced to keep pace with a changing and expanding universe of potential disclosure channels, a virtually impossible task."

SEC said that it had decided not to take enforcement action against Netflix chief executive Reed Hastings after initially investigating whether he had broken the disclosure rules over a post he made on his personal Facebook page last year. In July 2012 he revealed that the company had recorded monthly viewing figures of more than one billion hours for the first time. Netflix experienced a spike in its share price in the immediate aftermath of Hastings' disclosure.

"The report of investigation explains that although every case must be evaluated on its own facts, disclosure of material, nonpublic information on the personal social media site of an individual corporate officer — without advance notice to investors that the site may be used for this purpose — is unlikely to qualify as an acceptable method of disclosure under the securities laws," SEC said in a statement. "Personal social media sites of individuals employed by a public company would not ordinarily be assumed to be channels through which the company would disclose material corporate information."