April 3, 2013 | Blog

SEC Issues New Disclosure Guidance Today, but Offers Little Real Clarity

For those who missed it, the SEC put out this release today effectively blessing the use of mainstream social media outlets like Twitter and Facebook as proper disclosure vehicles.

http://www.sec.gov/News/PressRelease/Detail/PressRelease/1365171513574#.VQrXMI7F-FU

The key directives can be found in the quoted statements by a director, as opposed to a clear set of rules, in which the SEC defines a suitable social media outlet as one that has open access for all possible investors (i.e. non-restrictive membership).  Further, and in the spirit of past direction about the use of a corporate website for disclosure purposes, investors should have a clear understanding and expectation that key announcements could be made through such a vehicle.

What I found most interesting was that the SEC chose to openly discuss and dismiss Netflix’s recent Reg. FD violations directly in this release.  Despite the fact that Netflix investors were never properly alerted that the Company might use Facebook or the Company’s blog to distribute material information (which the CEO did, twice), the SEC chose not to pursue legal action.  The skeptic in me wonders if the SEC fears another public black eye like the Siebel Systems situation a few years back.  For those who don’t remember, Siebel fought and overturned a Reg. FD fine and violation in 2006.  To make matters worse, the judge in the case actually scolded the SEC for placing an “unreasonable burden on a company’s management and spokespersons to become linguistic experts, or otherwise live in fear of violating Regulation FD should the words they use later be interpreted by the SEC as connoting even the slightest variance from the company’s public statements.”

So what does this mean for the average small- and mid-cap company?  Personally, and as I’ve blogged about in the past, I think this means very little.  While I applaud the SEC for recognizing that the communications world is going through a dramatic transformation, I still see significant risk of selective disclosure through the use of social media – even if it’s selective disclosure in principal as opposed to in a legal sense.  Traditional institutional investors are still not using Twitter and Facebook as anything more than a hobby per the conversations and surveys we’ve had with them over the last year.  Most still use a Bloomberg machine and we all know how antiquated that is.  Putting out a material piece of information through social media and risking that one of your large investors might miss it, is a mistake they won’t easily forgive.

I continue to believe that unless you are a technology company (who has to look hip) or a consumer brand-oriented company (that is already using social media for customer marketing purposes), there is little reason you need to spend IR resources and time on social media. Ignore the PR firms claiming that investors are waiting for you there, as they simultaneously try to sell you a pricey monthly service.  Wait until the social media platform is more firmly refined and accepted by the investment community (which likely will correlate with the demise of the Bloomberg dinosaur).  Maybe when that time comes, the disclosure rules will finally be better defined by the SEC.

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