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From Securities Regulation Daily, April 3, 2013

Companies May Use Social Media for Announcements If Investors Are Alerted

By Rodney F. Tonkovic, J.D.

The SEC has announced that companies may use social media to make announcements so long as investors are alerted about which social media will be used. The announcement is the result of an investigation into whether Netflix, Inc. (Netflix) and its CEO, Reed Hastings, violated Regulation FD and Exchange Act Section 13(a) by making company announcements on Facebook. The Commission determined not to pursue an enforcement action (Release No. 69279, April 2, 2013).

According to the investigation report, on July 3, 2012, Hastings used his personal Facebook page to announce that Netflix had streamed 1 billion hours of content in June. Hastings’ personal page had never before been used to make such announcements, and shareholders were not previously informed about this announcement. There was no accompanying press release, and the statement was not posted or announced anywhere else. The Facebook post was also not accompanied by a Form 8-K.

According to the Commission, Hasting’s announcement represented a nearly 50-percent increase from streaming hours from Netflix’s most recent announcement on the matter. Netflix had announced a streaming milestone in January 2012 via press release, a letter to shareholders, and on its Form 8-K. Hastings’ announcement reached the market incrementally through a handful of outlets and was eventually picked up by the mainstream press.

The Commission staff learned during the investigation that there was market uncertainty in regarding the application of Regulation FD and the Commission’s August 2008 Guidance on the Use of Company Web Sites to disclosures made through social media channels. The Commission noted its awareness of the proliferation of social media since the issuance of the 2008 Guidance but observed that companies' use of social media is not fundamentally different from the use of websites, blogs, and RSS feeds addressed by the 2008 Guidance. The Report of Investigation was accordingly issued to provide guidance.

The report reminds issuers that whether Regulation FD has been violated requires an analysis of facts and circumstances based on the specific context. The Commission went on to state that issuer communications through social media channels require Regulation FD analysis comparable to communications through more traditional channels. Additionally, the Commission stated that the principles outlined in the 2008 Guidance are still relevant to social media, emphasizing in particular "the concept that the investing public should be alerted to the channels of distribution a company will use to disseminate material information."

The Report found that the disclosure of material, nonpublic information on the personal social media site of an individual corporate officer is unlikely to qualify as an acceptable method of disclosure under the securities laws unless investors receive advance notice that the site may be used for this purpose. "Personal social media sites of individuals employed by a public company," the Commission observed, "would not ordinarily be assumed to be channels through which the company would disclose material corporate information," The report concluded that adequate notice would give all investors the ability to gain access to material information at the same time.

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