SEC and The Use of Social Media

The use of social media has become a very convenient and economical way for companies and individuals to share and broadcast information. However, this avenue of advertising and communication has attracted the attention of both federal and state regulators. Last summer, Netflix Inc.'s CEO Reed Hastings posted information on his personal Facebook (which has some 200,000 followers) regarding the fact that Netflix's monthly online viewing by subscribers had exceeded 1 billion hours for the first time. Within 24 hours of the post, Netflix stock price shot up from $70.45 to $81.72, prompting an SEC investigation.

On April 2, 2013, the SEC issued a report (see SEC Release No. 69279), confirming that Regulation FD (Fair Dealing) applies to social media sites the same as it applies to websites, and outlining that the SEC will generally allow companies to make corporate announcements over social media sites provided certain steps are taken, including the companies having previously alerted investors that the company will use social media outlets to make such announcements.

This is a great reminder that compliance personnel need to be monitoring social media use by the firm and its employees (including senior management), including a review of all postings in an effort to ensure compliance with applicable regulations. Importantly, compliance personnel should confirm that the firm's internal controls surrounding social media use are robust and reasonably designed to prevent violations. For help on this subject or on other compliance topics, please contact Genevieve Tenorio at (619) 278-0020 or genevieve.tenorio@corecls.com.