Regulation Fair Disclosure (known as "Regulation FD") was
enacted in 2000 by the Securities and Exchange Commission (the "SEC") to
prohibit selective disclosure of material non-public information by the public
companies or persons acting on their behalf to a selected group of outsiders
(often market professionals, analysts or major investors) where it is
reasonably foreseeable that they would trade on that information before it is
made available to the general public. The Regulation requires that if such
selective disclosure has been made, then the company must promptly disclose that
same information to the public. Public disclosure was typically made by filing
Form 8-K with the SEC and/or issuing a press release.
Given the development of the Internet and proliferation of company websites,
the SEC said in its 2008 interpretive guidance that it was possible to
disseminate the information by posting it on the company's website, so long as
it was viewed as the corporate "recognized channel of distribution." This
would depend on the "steps that the company has taken to alert the market to
its website and its disclosure practices, as well as the use by investors and
the market of the company's website." The guidance offered a
non-exhaustive list of factors to be considered in evaluating whether the
website is a "recognized channel of distribution." Mainly, the inquiry
focused on the question of whether the company has made its shareholders,
investors and the market in general aware that it was going to use its website
as its main channel of news distribution.
The advance of technology and social media has continued to test the boundaries
of Regulation FD. On July 3, 2012, the Netflix CEO Reed Hastings posted on his
personal Facebook page that Netflix monthly viewing exceeded 1 billion hours
for the first time. There was no simultaneous press release or Form 8-K filed.
Reed Hasting's Facebook page had over 200,000 followers at the time of the
post, including equity research analysts, shareholders, reporters and bloggers.
It was the first time that Mr. Hasting's personal page was used to announce
Netflix news and Netflix did not previously inform its shareholders that
Hasting's Facebook page would be used to disclose material information about
the company. Previously, Netflix used press releases, its website, Twitter feed
and blog to release information about Netflix. So, did this posting violate
The SEC launched an investigation, and on April 2, 2013 issued a report
announcing that it determined not to pursue an enforcement action in this
matter given that there was confusion regarding the application of Regulation
FD to social media. In its report, the SEC advised all public issuers
that they need to analyze their every single communication, whether it is made
through the website, blog, email alert, twitter account or Facebook page, for
compliance with Regulation FD. Companies need to identify for their
shareholders and investors which communication channels they will use to
disseminate material information. For example, companies can do so by simply
including the company's website address (or Facebook page address, etc.) in their
periodic reports and press releases. Also, the companies' websites can identify
the steps that the public needs to take to receive important updates (such as
subscribing, joining a group, or "liking" a page). The SEC noted, however, that
posting material information on a personal Facebook page without prior notice
to the public that the page would be used for this purpose is unlikely to pass
the Regulation FD muster, regardless of the number of followers. The use of
personal Facebook page should not be a channel for the company's dissemination
of material corporate information.
In conclusion, below are a number of steps that public companies may consider
This article is not a legal advice, and was written for general informational
Read more commentary from Arina Shulga on the
legal aspects of operating new and growing businesses at Business Law Post.
For more information about LexisNexis
products and solutions connect with us through our corporate site.