Securities Regulation and the Use of
Social Media by Public Companies

By Joseph C. Marrow

September 2009

Public companies today, more than ever, disseminate corporate communications to their constituents (shareholders, customers, prospective investors) by means of a variety of social media platforms (corporate web sites, blogs, Twitter). In so doing, companies should consider whether the disclosure of corporate information runs afoul of the federal securities laws. To guard against federal securities law violations, public companies should implement policies to regulate such disclosures by company representatives.

The SEC adopted Regulation FD (Fair Disclosure) to prohibit an issuer or persons associated with an issuer from selectively disclosing material nonpublic information. (See Selective Disclosure and Insider Trading.) The SEC was primarily concerned that issuers were selectively sharing material nonpublic information (earnings guidance, warnings about earnings) with securities analysts or certain institutional investors prior to disclosing the same information to the general public. Regulation FD requires that in the event of an unintentional selective disclosure, a public company must immediately disclose the information to the public. The adoption of Regulation FD predated the proliferation of social media communication channels and therefore did not contemplate how the regulation would function in the new media setting.

Companies must consider whether the posting of information on a company web site or through another social media channel constitutes a “public” disclosure for purposes of Regulation FD. The SEC did issue an interpretive release providing guidance on the federal securities law issues raised by the use of social media by public companies. (See Commission Guidance on the Use of Company Web Sites.) Unfortunately, the guidance provided by the SEC does not draw a bright line. Instead, the SEC provides a facts and circumstances examination to determine whether information posted online is public. Some of the facts and circumstances to be weighed include the following:

• Whether the company routinely posts similar information on its corporate web site;
• Whether the company keeps the information on its web site current and accurate;
• Whether the company includes information about its web site in its periodic reports and press releases and notifies the general public that information is posted on its web site;
• Whether the design of the company web site efficiently leads visitors to corporate information, including information specific to investors, and prominently features such information in a location and format that is consistent and readily accessible to the general public; and
• Whether the company uses other methods (apart from its web site) to distribute information.

A company needs to evaluate its disclosure of information through social media channels against these factors to make the determination whether the information disclosed is “public.” In addition to providing principles-based guidance as to whether company information is public, the SEC’s interpretive release also confirmed the applicability of the antifraud provisions of the federal securities laws to company statements posted on the internet, in the same manner as they would apply to other statements made by or attributable to a company.

The SEC’s adoption of Regulation FD was not designed to restrict the posting of company information on corporate web sites or other social media means. Indeed, the SEC has encouraged companies to use the internet and social media tools to disseminate information. The regulation was implemented to prevent the disclosure of material nonpublic information to a limited group prior to disclosure to the general public.

Given the scrutiny of and the risks inherent with company-related internet postings, companies should tread carefully in the area of disclosure of company information over the internet. Companies should give strong consideration to implementing policies and procedures to oversee statements made by a company or its representatives in social media settings. By way of example, please see the social media guidelines adopted by IBM.

For more information on social media matters, please contact the author Joseph C. Marrow.

 

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