The SEC Cracks Down on Social Media Disclosures

By Cydney Posner

According to a report in the Wall Street Journal, SEC has issued Wells Notices to Netflix and its CEO because of a Facebook post by the CEO announcing that Netflix users had streamed more than 1 billion hours of video in June. No press release was issued, nor was an 8-K filed. The SEC is apparently concerned that the disclosure was material and was not issued in an FD-compliant manner. The CEO contends, first, that the information was not material and second, that the posting should be considered acceptably public because he has over 200,000 subscribers, including many reporters and bloggers.

You may recall that the former CEO of Sun Microsystems previously tried, to no avail, to have the SEC bless his blog postings as FD-compliant disclosures. In 2006, he wrote to then SEC Chairman Christopher Cox, requesting that he be permitted, under Reg FD, to disclose material nonpublic information on his blog or, more generally, that FD's "widespread dissemination" requirement be satisfied through disclosure solely by web postings. While, according to Cox's reply post, the internet is a useful source of information to the market and investors, it's apparently not yet ready for prime time: before the SEC could "embrace your suggestion that the 'widespread dissemination' requirement of Regulation FD can be satisfied through web disclosure, among the questions that would need to be addressed is whether there exist effective means to guarantee that a corporation uses its website in ways that assure broad non-exclusionary access, and the extent to which a determination that particular methods are effective in that regard depends on the particular facts."  

Apparently, the use of social media for disclosure purposes is still a hard sell to the SEC. The SEC has barely accepted the use of company websites as FD-compliant disclosure alternatives. In 2008, the SEC attempted to provide some guidance with regard to the use of company websites to make public announcements of material information in compliance with FD.  (See News Brief dated 8/11/08.)  Because of the nature of the preconditions,  however, few companies have thus far reached a sufficient comfort level to rely solely on their websites for FD disclosures.

This case should be an interesting one to follow….

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