Four months after the Security & Exchange Commission (SEC) said it would investigate Netflix CEO Reed Hastings for posting information "material" to investors on his public Facebook page, the same agency last week announced that companies can now use social media for investor information (see: SEC Pans Netflix CEO's Facebook Status).
They can do so, however, only if they have previously alerted investors about which social media they should use to get this information, the SEC said. In the case of Hastings, neither Netflix nor the CEO had previously used his Facebook page to announce company metrics (such as the 1 billion monthly online viewing hours he reported in December 2012). Netflix had not alerted investors that the company might use Facebook to disseminate earnings-related information nor did it mention that fact in a press release sent later that day, the SEC found.
Although written before Facebook, Twitter, LinkedIn, and other social networks became entrenched, the SEC's existing Regulation FD encompasses social media and other emerging means of communication that public companies use, just like websites, the agency determined, building on its Internet-related ruling of 2008. This rule requires that companies distribute material information in a way that can reasonably be expected to guarantee investors equal access to the data.
The SEC's social media decision dates back to its earlier ruling regarding the overall web
"Most social media are perfectly suitable methods for communicating with investors, but not if the access is restricted or if investors don't know that's where they need to turn to get the latest news," said George Canellos, acting director of the SEC's Division of Enforcement, in a statement.
Although many pundits praise the inclusion of social media (at last), some sound a cautionary note -- especially on sites like Twitter or Facebook, where it's simple to create a fake ID and post false information purportedly from a corporate entity or executive. That's why most compliance officers plan to use social media accounts solely to link to official press releases or other announcements, Yahoo reported.
Spreading rumors and tips is another gray area, reported the Economic Times of India. That's one reason Sebi, the Indian counterpart of the SEC, plans to soon hire staff to sift through social media sites and blogs to dig up insight that could impact stock prices before they're disclosed through authorized channels, the Times said.
The SEC did not initiate an enforcement action or allege any wrongdoing by Hastings or Netflix.
While the commission has cleared up some of the legal confusion surrounding executives' use of social media, public companies must obviously create and adhere to guidelines that prevent individuals from spontaneously announcing news on their personal Twitter, Facebook, or LinkedIn accounts. Executive-written blogs and other approved messengers will continue to get scrutiny, even at a time when the merest hint of rumor can spread across the world within minutes.
In the world of stocks, investors can potentially make or lose a fortune on a whisper -- even if it's shouted on Twitter.
— Alison Diana , ThinkerNet Editor, Internet Evolution