The SEC finally made it legal for companies to post investor relations news on social media channels. As long as businesses follow its approved guidelines, a status or Tweet has as much merit as a physical press release or website announcement.
Companies can use social media outlets like Facebook and Twitter to announce key information in compliance with Regulation Fair Disclosure (Regulation FD) so long as investors have been alerted about which social media will be used to disseminate such information.
In their release, the SEC says that companies must follow two guidelines to start publishing announcements on social media.
1. The information must be accessible to all investors.
The Regulation FD mentioned above was adapted in 2000 and states that companies must make news public to all possible parties. Withholding news from any party qualifies as insider trading.
2. Investors must know where to look for information.
Companies must announce where investors can find news. For example, if a company announces that news will be tweeted from @Companynews, they shouldn’t announce a market share update on @CEOspersonalhandle.
This decision was reactionary based off of charges brought against Netflix CEO Reed Hastings, who the SEC calls out by name in their statement. Hastings announced that Netflix passed 1 billion hours of viewing on his personal Facebook page back in December. Netflix’s stock price started to rise and the SEC called foul as he hadn’t issued an official release with the news and he had not specified that investor updates could be found on Facebook.
The SEC is completely behind the times with this decision. The reason they had to review social media guidelines in the first place was because corporate execs were already using it. They could either modify regulations to meet the needs of the 21st century or audit half of Fortune 500 companies. This is the same organization that took until 2008 to accept websites as an appropriate way to share news. Now the most media are turning to blogs and webpages to read releases and articles before covering the news.
Not everyone thinks this decision is a step in the right direction. As one CNN journalist put it:
[The SEC] should not simply shrug its shoulders at selective disclosure, just because the offender is using something hipper than a traditional press release.
If I may paraphrase: Kids these days, publishing shareholder news with their newfangled technology. When I was their age we had walk five miles in the snow — uphill both ways — just to check on our investments.
While I am poking fun at him, I do think we should be careful with new technology. Chuck Jaffe of MarketWatch points out that anyone with an email address can create fake accounts and announce investor news to the less tech-savvy. If someone claimed the handle @GoldmanSachsInvestors they could give the appearance of tweeting from an official Goldman Sachs account and start announcing trading news that’s not actually happening. This also opens new doors to hackers. It’s funny when Burger King gets hacked and has their logo changed, but not so much when a company’s investor account is compromised and the firing of a CEO is incorrectly published.
Each new scam and hacker will have to be stopped as they pop up, and the SEC acknowledges that most social media problems will have to be taken on a case-by-case basis, but it’s good that the SEC finally caught up to what the rest of the corporate world is already doing… for now.