Earnings Not Yet a Viral Sensation

ay 8, 2013, 7:48 p.m. ET

Earnings Not Yet a Viral Sensation


When Facebook Inc. FB +0.86% boss Mark Zuckerberg announced first-quarter results, he didn’t break the news with a Facebook post. He stuck with an old-fashioned news release. Across the U.S., earnings season came and went with few signs that companies are taking advantage of the Securities and Exchange Commission’s green light to tweet or post market-moving information. On April 2, the SEC announced that companies “can use social media outlets like Facebook and Twitter to announce key information…so long as investors have been alerted about which social media will be used to disseminate such information.” Since then, only about a dozen firms have said they might break news on Facebook, Twitter and the like. And few of those companies make much noise online.Nielsen Holdings NV NLSN +0.74% had fewer than 70 followers on its investor-relations department’s Twitter account when the tracker of what consumers watch and buy said it might disclose financial information with tweets on that account. A Nielsen spokeswoman declined to comment.

A Facebook spokesman said the company plans to “disseminate information as broadly as possible, and that will include using Facebook.” He wouldn’t say when that would begin or if Facebook will ever use its own site as the primary place to report earnings.

On Wednesday, Zillow Inc. Z -9.95%took questions submitted via Facebook and Twitter during the real-estate website’s earnings-related conference call. Zillow got questions from 11 accounts, mostly using tweets, according to a company spokeswoman.

Some securities lawyers say the tepid response shows some corporate executives still are concerned they might get in trouble because of their tweets. One reason: The SEC’s guidance was more general than specific, leaving the agency wiggle room to pursue enforcement action.

As companies and their lawyers dug into an eight-page report laying out the agency’s logic, some were bothered by the sentence, “Every case must be evaluated on its own facts.” The SEC also said that social-media channels need to clear the same hurdle of “broad and non-exclusionary distribution to the public” as other media in order to comply with the 13-year-old rule known as Regulation Fair Disclosure.

Amy Goodman, a partner at law firm Gibson, Dunn & Crutcher LLP, says the agency’s guidance on the use of Facebook and Twitter suggests that companies “could still be vulnerable to enforcement action if that channel has very few followers and it’s used as the sole means” to disclose financial information.

The SEC has taken 13 enforcement actions against companies and executives for alleged earnings leaks and other rule breaches of Reg. FD, according to an analysis by Stanford University law professor Joseph Grundfest. One way to land in hot water is by tipping favored analysts to market-moving information. The same thing could happen now if a company’s tweets are read by just a few investors.

“I don’t think the SEC is trying to trap people,” says Steve Quinlivan, a lawyer at Leonard, Street and Deinard PA in Minneapolis. “But if they think somebody crossed the line, they’re not going to wait five minutes to bring an enforcement action.”

The SEC declined to comment on the minimum number of Twitter followers needed for a company to safely tweet its earnings. “We do not comment on specific situations,” Lona Nallengara, acting director of the SEC’s corporation-finance division, wrote in an email to The Wall Street Journal.

In 2008, the SEC issued guidelines on how Reg. FD applies to corporate websites. Ms. Nallengara says companies “were able to figure out how to disclose information on their websites using our 2008 guidance,” and so “we believe they should be able to do the same with social media” using last month’s announcement.

For now, though, “companies are still taking a wait-and-see approach,” says Broc Romanek, editor of TheCorporateCounsel.net, a website for corporate lawyers.

Last month’s announcement by the SEC followed an investigation into a post byNetflix Inc. NFLX +1.14% Chief Executive Reed Hastings on his personal Facebook page. In December, the SEC warned the streaming-video company that the agency intended to take enforcement action over the posting, where Mr. Hastings said monthly online viewing had surpassed a billion hours.

Some senior SEC officials had misgivings about the potential Netflix lawsuit, and at least one of the agency’s five commissioners questioned whether the agency should punish the company when there were no clear and up-to-date guidelines, no evidence the company acted in bad faith and no apparent harm to investors, people familiar with the probe say.

The concerns were exacerbated when Mr. Grundfest, a former SEC commissioner, published a paper saying the agency faced a “significant risk” of losing to Netflix. Meanwhile, Netflix refused to enter settlement talks, arguing it had done nothing wrong, said the people familiar with the probe.

George Canellos, the SEC’s acting enforcement director at the time, recommended that the agency resolve the matter with a report that sets out the agency’s thinking without taking enforcement action.

In contrast to the SEC’s typical practice, last month’s announcement on the use of social media was made without any input from Netflix or a heads-up to the company, people close to the probe say.

About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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