On April 2, 2013, in response to a Facebook post made by Reed Hastings, CEO of Netflix, the Securities Exchange Commission (“SEC”) issued a report confirming that companies can use social media, such as Facebook and Twitter, to make company announcements in compliance with Regulation Fair Disclosure (Regulation FD) as long as investors are alerted as to which social media outlet is being used by the company. In the report the SEC stated that previously published guidance on the use of Company websites was applicable to the use of social media. Accordingly, in a series of blogs I am reviewing the SEC guidance on the use of company websites. This blog is Part II in the series.
Background
Regulation FD requires that companies take steps to ensure that material information is disclosed to the general public in a fair and fully accessible manner such that the public as a whole has simultaneous access to the information. Regulation FD ended the era of invitation-only conference calls between company management and a select group of brokers and investment bankers, in which plans and earnings would be discussed and material information shared in advance of such information becoming public knowledge. In its report issued on April 2, 2013, the SEC confirmed that Regulation FD applies to social media in the same manner it applies to company websites.
SEC guidance on the use of company websites
The SEC issued its Commission Guidance on the Use of Company Websites, effective August 7, 2008, which guidance remains applicable today. A complete copy of the guidance is available on the SEC website and is summarized in this series of blogs, with this being Part II in the series. In general the SEC encourages the use of company websites, and technology generally, to provide information to investors, provide analytical tools, and as a source of overall market transparency. The guidance focuses on:
(1) When information posted on a company website is “public” for purposes of the applicability of Regulation FD;
(2) Company liability for information on websites, including previously posted information; hyperlinks to third-party information; summary information and the content of interactive websites;
(3) The types of controls and procedures advisable with respect to website information; and
(4) The format of information presented with a focus on readability, not printability.
Evaluation of when information on a company website or social media posting is public for purposes of Regulation FD
According to the SEC, “[I]n order to make information public, it must be disseminated in a manner calculated to reach the securities marketplace in general through recognized channels of distribution and public investors must be afforded a reasonable waiting period to react to the information.” Therefore, in determining whether information is public, the first question is whether the website or social media platform is a recognized channel of distribution. The answer to that question depends on the efforts the company has taken to alert the marketplace to its website and a particular social media platform as a source for the distribution of information, and whether the public and marketplace actually look to these sources. In other words, a company can launch a campaign informing the world that it will post weekly sales updates on its Twitter page; however, if in fact only a small handful of people view that Twitter page, the information is likely not public.
In determining whether information is public, the second question is whether information posted on a website or social media platform is disseminated to the marketplace. Generally in today’s world, all information posted on a website in an unrestricted manner or social media platform would be disseminated information. The underlying factual analysis depends on the manner in which the information is posted and the timely and ready accessibility of the information to the marketplace.
A non-exclusive list of factors in determining whether a website or social media platform is a recognized channel of distribution and whether information posted is timely and accessible and therefore disseminated, includes:
- how the company informs the public of its website and social media use (for example, by disclosing this information in its reports filed with the SEC and in its press releases);
- whether the company makes the public aware, including through its periodic filings and press releases, that it will and does post information on its website and through social media, and whether the company is consistent in both its message that it intends to and its use of the website and social media as a method of posting information;
- whether the website or social media platform is user-friendly and information posted is easily found and accessible;
- the extent to which information on the website or social media is picked up and retransmitted by third-party sources, including media outlets;
- the methods the company uses to make the information accessible, including the use of “push” technologies such as an RSS feed;
- whether the website and social media postings are current and accurate;
- whether the company is consistent with its postings and updates;
- other methods the company uses to disseminate information in relation to the use of the website or social media; and
- the materiality of the information posted.
In determining whether information is public, the third question is whether the marketplace is afforded a reasonable waiting period to react to the information. What constitutes a reasonable waiting period is a question of fact. A non-exclusive list of factual considerations include:
- the size of the market following the company;
- whether the website or social media platform is user-friendly and information posted is easily found and accessible;
- the steps the company takes to make the market aware that it uses its website and/or social media as a key source of providing important information;
- whether the company has taken steps to actively disseminate the information; and
- the nature and complexity of the information.
Ultimately in determining whether the information has been made public, the company should remember that the goal of Regulation FD is to prevent selective disclosure and the advantages to those receiving it and to ensure full and fair disclosure of information to the market as a whole. Although information on a website or social media posting may not be a selective disclosure, if it does not accomplish the goal of making the information public, a subsequent disclosure may be selective and therefore a violation of Regulation FD. The more important the information, the more steps the company should take to disseminate the information. Once information has been made public, the subsequent disclosure of the same information, such as to an analyst in a private conversation, would not trigger a violation of Regulation FD.
Complying with Regulation FD public disclosure requirements
Rule 101(e) of Regulation FD requires that once a selective disclosure has been made, the company must contemporaneously file a Form 8-K and/or use other reasonable methods of ensuring that the disclosed information is broadly and non-exclusively disclosed to the public. If an unintentional selective disclosure is made, a company must promptly file an 8-K and/or take additional measures to ensure that the information is broadly and non-exclusively disclosed to the public.
At the time the SEC issued its guidance in 2008, it concluded that for some companies whose websites are widely followed by the investment community, website postings alone may be sufficient to accomplish the required broad disclosure. As noted above, the same analysis is to be used for social media postings, though I would still recommend the filing of an 8-K and the issuance of a press release, especially when the information is important.
In Part III of this series I will address Company liability, including application of the anti-fraud provisions, for information on websites, including previously posted information; hyperlinks to third-party information; summary information and the content of interactive websites.
The Author
Laura Anthony, Esq.
Founding Partner
Legal & Compliance, LLC
Corporate, Securities and Going Public Attorneys
LAnthony@LegalAndCompliance.com
Securities attorney Laura Anthony and her experienced legal team provides ongoing corporate counsel to small and mid-size private companies, OTC and exchange traded issuers as well as private companies going public on the NASDAQ, NYSE MKT or over-the-counter market, such as the OTCQB and OTCQX. For nearly two decades Legal & Compliance, LLC has served clients providing fast, personalized, cutting-edge legal service. The firm’s reputation and relationships provide invaluable resources to clients including introductions to investment bankers, broker dealers, institutional investors and other strategic alliances. The firm’s focus includes, but is not limited to, compliance with the Securities Act of 1933 offer sale and registration requirements, including private placement transactions under Regulation D and Regulation S and PIPE Transactions as well as registration statements on Forms S-1, S-8 and S-4; compliance with the reporting requirements of the Securities Exchange Act of 1934, including registration on Form 10, reporting on Forms 10-Q, 10-K and 8-K, and 14C Information and 14A Proxy Statements; Regulation A/A+ offerings; all forms of going public transactions; mergers and acquisitions including both reverse mergers and forward mergers, ; applications to and compliance with the corporate governance requirements of securities exchanges including NASDAQ and NYSE MKT; crowdfunding; corporate; and general contract and business transactions. Moreover, Ms. Anthony and her firm represents both target and acquiring companies in reverse mergers and forward mergers, including the preparation of transaction documents such as merger agreements, share exchange agreements, stock purchase agreements, asset purchase agreements and reorganization agreements. Ms. Anthony’s legal team prepares the necessary documentation and assists in completing the requirements of federal and state securities laws and SROs such as FINRA and DTC for 15c2-11 applications, corporate name changes, reverse and forward splits and changes of domicile. Ms. Anthony is also the author of SecuritiesLawBlog.com, the OTC Market’s top source for industry news, and the producer and host of LawCast.com, the securities law network. In addition to many other major metropolitan areas, the firm currently represents clients in New York, Las Vegas, Los Angeles, Miami, Boca Raton, West Palm Beach, Atlanta, Phoenix, Scottsdale, Charlotte, Cincinnati, Cleveland, Washington, D.C., Denver, Tampa, Detroit and Dallas.
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