SEC Approves Using Facebook, Twitter for Company Statements

SEC Approves Using Facebook, Twitter for Company Statements

Companies can use social media outlets such as Facebook Inc. and Twitter Inc. to announce key information as long as investors have been alerted where to look, the U.S. Securities and Exchange Commission said today.

The SEC clarified the disclosure guidelines in a report of an investigation involving Netflix Inc. (NFLX) Chief Executive Officer Reed Hastings, who posted monthly viewership results on his Facebook page in July even though the company didn’t report the data in a public filing or press release.

The SEC confirmed that a regulation which prohibits companies from disclosing material information to select sets of investors applies to social media and other emerging means of communication the same way it applies to company websites. Company communications made through social media channels could constitute a violation of the fair disclosure rule known as Regulation FD if investors had not been told in advance where the information would be posted, the SEC said.The SEC’s guidance “is flexible enough to address questions that arise for companies that choose to communicate through social media, and the guidance does so in a straightforward manner,” Lona Nallengara, acting director of the SEC’s corporation finance division, said in a statement.

Greater Comfort

While the agency didn’t explain exactly how a company should inform investors about social media use, the new guidance will give companies greater comfort in communicating with investors via Facebook and Twitter, said David Katz, a partner at law firm Wachtell, Lipton, Rosen & Katz.

“Do I see it as a sea change? No,” Katz said in a telephone interview today. “But investor relations has moved into the 21st century and the SEC has caught up.”

Hastings stirred controversy over SEC disclosure guidelines when he wrote in a July 3 post on Facebook Inc. (FB)’s website that viewing on Netflix’s video-streaming service had “exceeded 1 billion hours for the first time” in June. The incident led to calls for the SEC to broaden its rules to allow social media to be used to communicate to investors.

In December, Hastings and Netflix each received a Wells Notice, indicating SEC staff intended to pursue enforcement action in the matter. That same month, Hastings said that posting to his Facebook contingent of 200,000 followers “is very public.”

The SEC declined to pursue an enforcement action against Hastings or Netflix because of the previous uncertainty about how Regulation FD applies to social media, the report said.

“We appreciate the SEC’s careful consideration and resolution of this matter,” Netflix spokesman Joris Evers said in a statement.

To contact the reporter on this story: Joshua Gallu in Washington at jgallu@bloomberg.net