There was mixed reaction this week to the recent announcement by the Securities and Exchange Commission that it will allow companies to use social media for the release of key information that would be of interest to investors.
Under its explanation, the SEC will let companies use Facebook, Twitter or other sites to announce material information. Investors need to be informed ahead of time that the company will be using social media and need to know the identity of the social media sites.
But there are concerns about the SEC decision.
For example, the move could result in more cases of fraud and scams. Consider what’s happened with celebrities and Twitter.
“The problem is that Twitter names and handles are easily faked, and while Twitter tries to verify ‘official’ accounts for celebrities, it also allows a lot of close knock-offs of celebrity names,” MarketWatch explained.
Also, Dan Primack wrote in Fortune that the SEC failed to come up with an “adequate solution” to the problem. He wants to see material information be “publicly-available in a central location, such as the investor relations page of a company's website.”
“Missing from the SEC's announcement … is that central repository requirement,” Primack said. “Or at least a recommendation.”
There is also concern about future spontaneity by businesses.
“The new move may reduce spontaneity because companies may limit their communications to official corporate accounts and file the information with the agency [SEC] at the same time,” according to a report from The New York Times.
Still, there is overall support for the new move by the SEC given the recent growth in social media.
In addition, the SEC explained that information governed by the new announcement relates to Regulation Fair Disclosure (Regulation FD).
The announcement follows a ruling by the SEC in 2008 that let companies use their websites to announce material information to investors. There, too, the companies have to let investors know ahead of time the information will be announced on websites.
Also, one of the main goals of the policy is to ensure that all investors get equal chances to gain access to important information at the same time.
“One set of shareholders should not be able to get a jump on other shareholders just because the company is selectively disclosing important information,” George Canellos, acting director of the SEC’s Division of Enforcement, was quoted by TechZone360. “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.”
The new SEC opinion came after a post on a personal Facebook page made by Netflix CEO Reed Hastings. Last year, he wrote that Netflix’s monthly online viewing went past one billion hours for the first time. The company did not report the news via a press release or Form 8-K filing.
Neither Hastings nor the firm previously alerted investors that such information could be announced via his personal Facebook page.
To get an idea of how important such information may be, Netflix’s stock price went from $70.45 at the time of the Facebook post to $81.72 at the close of the following trading day.
No actions were taken against Hastings or Netflix by the SEC.
But with the new announcement by the SEC, companies should be careful about not informing their investors ahead of time where information may be posted.
Eugene Goldman, an attorney who used to work at the SEC’s enforcement division, told The Washington Post, “Next time material information is disclosed on an executive’s Facebook page without the company alerting all shareholders to look there for information, the matter will likely be met with an SEC lawsuit.”
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