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The Securities and Exchange Commission announced today that companies can use social media outlets like Facebook and Twitter to make news announcement in compliance with Regulation FD (Fair Disclosure), if investors have previously been told which social media the company will be using, and who’s feed to monitor. Regulation FD requires companies to distribute important news in a manner designed to get that information out to the general public, so that all investors have the ability to get important news at the same time. Today the SEC confirmed that social media can meet that requirement, if certain conditions are met.

The SEC commenced an investigation last year after Netflix CEO Reed Hastings posted on his personal Facebook page on July 3, 2012 that Netflix’s monthly online viewing for June 2012 had exceeded one billion hours for the first time. Netflix did not report that information to investors through a press release or Form 8-K filing, and a Netflix press release later that day did not include the information. The announcement represented a nearly 50% increase in streaming hours from Netflix’s January 25, 2012 report, and was clearly important news to the market. Hastings and Netflix had not previously used Facebook to announce company metrics, and they had never told investors to watch Hastings’ personal Facebook page for Netflix news. Netflix’s stock price increased from $70.45 at the time of the post, to $81.72 at the close of the following trading day.

According to the SEC press release: “The SEC did not initiate an enforcement action or allege wrongdoing by Hastings or Netflix. Recognizing that there has been market uncertainty about the application of Regulation FD to social media, the SEC issued the report of investigation pursuant to Section 21(a) of the Securities Exchange Act of 1934.”

The SEC’s report of investigation, available here, confirms that Regulation FD applies to social media used by public companies the same way it applies to company websites. As a result, reporting issuers cannot use social media as the sole method to report material, non-public information, unless the issuer has previously notified investors and the public to look to a specific site, page or feed for that type of information. Failure to comply could constitute selective disclosure and a violation of Regulation FD.

In particular, the report of investigation notes that the personal social media site of an individual corporate officer would not ordinarily be assumed to be a method  “reasonably designed to provide broad, non-exclusionary distribution of the information to the public” as required by Regulation FD, even if the officer is a business celebrity and has a large number of subscribers, friends or contacts.  “Personal social media sites of individuals employed by a public company would not ordinarily be assumed to be channels through which the company would disclose material corporate information”, and may not be used for that purpose unless the public is given advance notice that the site may be used to distribute company information.

 

 

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The SEC announced that smaller public companies must begin reporting on effectiveness of internal controls in 2010.  The SEC has granted several extensions to non-accelerated filers (smaller public companies – those with less than $75 million public float) for complying with Section 404(b) of Sarbanes-Oxley, which requires auditors to attest to the effectiveness of a public company’s design and implementation of accounting controls.  The previous extension gave small public companies until December 15, 2009 to begin reporting, so that the SEC’s Office of Economic Analysis could complete a study of whether additional guidance provided to company managers and auditors in 2007 was effective in reducing the costs of compliance.  However, that study was only recently published and the SEC believed it would be fair to grant additional time for small companies to get up-to-date on the study and guidance.

Small public companies whose fiscal years end on or after June 15, 2010 must include reporting on Sarbanes Section 404(b) compliance.  Although this is the sixth delay on implementation of 404(b) for smaller public companies, the SEC Chairman said that there will no more extensions.

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