The Securities and Exchange Commission has just made a surprising move, finally opting to join us here in the technological revolution and allowing companies to disclose material information from any social platform.
I’ve always thought the only ones who should be happy about the Securities and Exchange Commission’s onerous rules are attorneys, who can charge big fees for their advisory services. But the laws themselves often don’t help with the mission of the federal agency — to help individual investors — and usually, the disclosures are downright confusing.
Case in point, last December, when Netflix (NASDAQ:NFLX) CEO Reed Hastings tested the commission. He announced that the company saw more than 1 billion hours of video streaming for the month — and did so from his Facebook (NASDAQ:FB) page. This was either a gutsy or ignorant move, considering there were no clear-cut rules on such a transmission at the time, and the SEC sent a Wells notice to Hastings (generally done when there might be some type of sanction) because of his status update.
In a subsequent post for InvestorPlace, I wrote: “Perhaps the SEC should use this as an opportunity to recognize that social media can be a legitimate mechanism to disclose corporate information — not another technicality to use resources for litigation.”
I wasn’t too optimistic at the time. After all, the SEC still requires companies to issue paper-based prospectuses for their initial public offerings, helping to keep the Pony Express alive and well!
But the SEC trumped my cynicism with its announcement that companies are free to post corporate announcements on Facebook, Twitter and the like — even blogs.
To do so, a company must put together a social media policy that includes a list of the social media outlets a company will use for its official announcements. The main reason is that the SEC wants to ensure Regulation Fair Disclosure still is upheld. For instance, if a Twitter feed were really only available to a select number of investors, that’d be a big red flag.
As should be no surprise, there will be lots of ambiguity about the relationship between social media and Fair Disclosure regulation.
More good news for the attorneys.
Tom Taulli runs the InvestorPlace blog IPO Playbook. He is also the author of “How to Create the Next Facebook” and “High-Profit IPO Strategies: Finding Breakout IPOs for Investors and Traders.”Follow him on Twitter at @ttaulli. As of this writing, he did not hold a position in any of the aforementioned securities.