Investors looking to link in to the latest company news may now need to turn to LinkedIn–along with Facebook, Twitter and other social media–under guidelines issued by the Securities and Exchange Commission.
In its April 2 report, the SEC clarified that publicly traded companies can use social media outlets to announce material developments, as long as they advise investors beforehand where to look for such news so that no shareholders can “get a jump” on others.
“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,” George Canellos, acting director of the SEC’s Division of Enforcement, said in the news release accompanying the report.
The report recognized the importance of evolving social media platforms to both companies and investors, while also making clear that such platforms are subject to the SEC rules concerning fair and accurate disclosures. Citing its 2008 guidance approving the use of company websites as a channel to alert investors to news, the SEC said it expected companies issuing securities “to examine rigorously the factors indicating whether a particular channel is a recognized channel of distribution’ for communicating with their investors.” As a result, we would expect that more and more companies will announced their intentions to use open social media sites to share corporate information going forward.
While this decision may broadcast disclosures more widely, the growing use of social media is not without risk, a lesson driven home less than two weeks after the SEC’s report when U.S. stocks briefly lost $136 billion of value due to a single hijacked tweet about a fictitious attack on the White House. Syrian hackers seeking to call attention to their country’s plight posted the face tweet April 23 on The Associated Press’s Twitter account. Before the AP could removed it a few minutes later, computerized trading algorithms had already kicked in, sending the markets plummeting downward. While the market quickly recovered, the incident underscores the markets’ vulnerability in an age of nanosecond trading and mushrooming “news” platforms.
The SEC “report of investigation” containing the social media guidance came in response to an incident involving Netflix CEO Reed Hastings last July, when Hastings announced on his personal Facebook page that Netflix monthly viewing had “exceeded 1 billion hours for the first time.” While Hastings has more than 200,000 Facebook friends, Netflix had never used the site before to release material nonpublic information before. Netflix also failed to disclose the news in his Facebook post in a public announcement available to all investors. The SEC took no action against Netflix or Hastings, noting “uncertainty” about the applicable rules.
But now the rules are clear. Social media are fair game for material information, so long as companies tell shareholders where to look.