http://biztaxbuzz.com/sec-report-on-social-media-disclosures/ May 21, 2013

SEC REPORT ON SOCIAL MEDIA DISCLOSURES | BIZTAXBUZZ BY TREVOR CROW

17THAPRILSEC REPORT ON SOCIAL MEDIA DISCLOSURESPosted by Trevor Crow

The Securities and Exchange Commission (“SEC”) recently issued a report of its investigation relating to a Facebook postby Reed Hastings, the CEO of Netfl ix, which stated Netfl ix’s monthly online viewing had exceeded 1 bil l ion hours. TheSEC’s investigation was to determine whether Hastings or the Company violated Regulation FD under the SecuritiesExchange Act through the posting of this information.

In general, Regulation FD prohibits public companies, or persons acting on their behalf, from selectively disclosingmaterial, nonpublic information to certain securities professionals, or shareholders where it is reasonably foreseeablethat they wil l trade on that information, before it is made available to the general public. Here, the SEC decided not toinitiate an enforcement action against Netfl ix or Hastings. However, the report also offers guidance to public companiesregarding the application of Regulation FD to disclosures made through social media.

The report explains that, under certain circumstances, public companies may disseminate material, nonpublic informationthrough social media without violating Regulation FD if investors previously have been notified that specific social mediawil l be used to spread such information. The report states that the framework set forth in the SEC’s August 2008 Guidanceon the Use of Company Web Sites should be used when analyzing communications made through social media. Specifically,“the central focus of this inquiry is whether the company has made investors, the market, and the media aware of thechannels of distribution it expects to use, so these parties know where to look for disclosures of material informationabout the company or what they need to do to be in a position to receive this information.”

The report also explained that without prior notice to investors, it is unlikely that a corporate officer’s personal socialmedia site used to disseminate corporate information would qualify as a method “reasonably designed to provide broad,non-exclusionary distribution of the information to the public” as required under Regulation FD. In the Netfl ix inquiry,Hastings’ Facebook page had never been previously used to announce company metrics, yet the SEC sti l l chose not toinitiate an enforcement action against Netfl ix or Hastings.

Bottom Line: Public companies should have social media policies in place for their directors and executive officers toeducate them about Regulation FD. Before a representative of the company posts any material, nonpublic information on asocial media platform, the company should take steps to ensure that investors, the market, and the media are aware of thischannel of distribution.