No Rush to Use Social Media Yet

By Cydney Posner

In this article, the WSJ reports that the idea of reporting material news only on social media has not exactly taken off. As the article reports, even social media companies didn't use their sites alone to get their earnings news out, notwithstanding the "encouragement" from the SEC in its April report of investigation on Netflix (see my article from 4/2/13).

According to the article, this earnings season, there were "few signs that companies are taking advantage of the Securities and Exchange Commission's green light to tweet or post market-moving information….. Since then, only about a dozen firms have said they might break news on Facebook, Twitter and the like." Some companies used social media to take questions from their audiences.

One reason may be that some corporate executives "still are concerned they might get in trouble because of their tweets. One reason: The SEC's guidance was more general than specific, leaving the agency wiggle room to pursue enforcement action." For example, "some were bothered by the sentence, ‘Every case must be evaluated on its own facts.' The SEC also said that social-media channels need to clear the same hurdle of ‘broad and non-exclusionary distribution to the public' as other media" to comply with Reg FD. In other words, it was not entirely clear what importance the SEC would attach to the factors other than notice identified in the SEC's 2008 guidance on the use of websites. According to one former SEC staff member cited in the article, the SEC's guidance "suggests that companies ‘could still be vulnerable to enforcement action if that channel has very few followers and it's used as the sole means' to disclose financial information."

Interestingly, the article provides some insight into the decision-making underlying the SEC's decision to issue the Netflix report. According to the article, "[s]ome senior SEC officials had misgivings about the potential Netflix lawsuit, and at least one of the agency's five commissioners questioned whether the agency should punish the company when there were no clear and up-to-date guidelines, no evidence the company acted in bad faith and no apparent harm to investors, people familiar with the probe say. The concerns were exacerbated when [Joseph] Grundfest, a former SEC commissioner, published a paper saying the agency faced a ‘significant risk' of losing to Netflix. Meanwhile, Netflix refused to enter settlement talks, arguing it had done nothing wrong, said the people familiar with the probe. George Canellos, the SEC's acting enforcement director at the time, recommended that the agency resolve the matter with a report that sets out the agency's thinking without taking enforcement action. In contrast to the SEC's typical practice, last month's announcement on the use of social media was made without any input from Netflix or a heads-up to the company, people close to the probe say."

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