Reg FD, social media at odds?
The rise of social media has created lots of challenges for financial compliance managers.
Marketing folks are pressing the case for more corporate outreach via tools like blogs, Twitter, and Facebook, and that has presented some tricky disclosure issues. The issue was highlighted again recently when Netflix disclosed that it has received a Wells notice informing it that it might face SEC charges over Reg FD violations. The charges cite a Facebook post by CEO Reed Hastings in July that said that the firm "exceeded 1 billion hours" of video viewing in June. That ignited a stock rally.
The SEC apparently deems this a case of selective disclosure, but the agency would appear to be behind the times on this issue. Bloomberg notes that Reg FD was passed by the SEC in 2000, before the use of social-media outlets like Facebook and Twitter took off. Netflix notes that it has more than 200,000 followers on Facebook.
Shouldn't any announcements made via Facebook now be considered public?
One would think the company would've vetted the issue thoroughly before making the post. Then again, maybe the assumption at the firm was that Facebook announcements would qualify as public announcements. This is not an entirely new issue. Regulators took a while to conclude that disclosure via an Internet site was the same as a public announcement, which made traditionally distributed press release less necessary. Back in 2010, Google decided that it would stop issuing financial press releases traditionally in favor of simply posting the information on its IR web site.
We may be at the point where the SEC has to adjust its thinking about Facebook and other social media, laying out the circumstances that would allow social media to serve as a "recognized channel" for investors. Until then, however, compliance managers need to be careful about how CEOs use tools like blogs. -Jim