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The Use of Social Media
in Investor Relations
Securities Law Issues
Howard E. Berkenblit
Sullivan & Worcester LLP
June 4, 2013
What is Regulation FD?
 “Fair Disclosure”
› SEC’s effort to make information
available to ALL investors equally
without selective disclosure
 Prohibits disclosure by certain
persons acting on behalf of an
issuer of material nonpublic
information to particular
individuals without simultaneous
disclosure to the investing public
2
What is “Material” Information?
 No bright line test
 Substantial likelihood that a reasonable shareholder
would consider it important in making an investment
decision
 Substantial likelihood that a reasonable investor would
view it as having significantly altered the total mix of
information available
3
What is “Material” Information? - Cont’d
 Qualitative and quantitative
determination
 Can be direct or indirect (a wink or a
nod can be as expressive as words)
 Mosaic Theory - Can’t disguise by
breaking into pieces, but a company
can disclose information which is
not material, even if it helps the
other party complete a “mosaic” of
information that, taken together, is
material
 Reaffirming information can be
material
4
Regulation FD Applies to Communications by:
 Senior officials (executive officers and directors)
 Investor relations and public relations personnel
 Any other officer, employee or agent who regularly
communicates with securities market professionals or
security holders
 Can’t direct someone not covered to make disclosure as
a way around
 Person who communicates in breach of a duty to issuer
not considered acting on company’s behalf
5
Regulation FD Applies to Communications to:
 Analysts
 Broker-dealers and their associated
persons
 Investment advisers and certain
institutional managers and their
associated persons
 Investment companies and hedge
funds
 Security holders under circumstances
in which it is reasonably foreseeable
that such persons would purchase or
sell on the basis of the information
6
Regulation FD Does Not Apply to Communications to:
 Persons who owe the company a duty of trust or
confidence (e.g., attorney, investment banker, or
accountant)
 Persons who expressly agree to maintain the
information in confidence
 Employees (deemed to be part of the company)
 Persons with whom the company communicates in
the ordinary course (e.g., customers and suppliers)
 Relating to most registered (but not private) securities
offerings
7
How are Subject Communications Made Available
to the Public?
 Methods are flexible as long as reasonably designed
to effect broad, non-exclusionary distribution of
information to the public
› Press Release
› Form 8-K (can be “filed”
or “furnished”)
› Disclosed during a
pre-announced, open
conference call
› Website and social media (described later)
› Combinations provide maximum protection
8
What are the Potential Penalties for a Violation of
Regulation FD?
 SEC enforcement action
› Disclosure rule, no liability for fraud
solely as a result of failure to comply
with Regulation FD
› Cease and desist order
› Civil action seeking injunction or
penalties, but no private right of action
› The existence of appropriate disclosure
policies adopted by company may
affect SEC decisions to pursue
enforcement actions
9
How Does Social Media Fit in with Regulation FD?
 Not “traditional” Regulation
FD disclosure method
 2008 guidance allowed
website posting, but subject
to conditions
 2013 report allows social
media, subject to the same
conditions
10
2008 Website Guidance
 Website is “recognized channel of distribution”
 Posting on the website disseminates the information in a
manner making it available to the securities marketplace
 There has been a reasonable waiting period for investors
and the marketplace to react to the posted information
Information initially posted on a website (but not
elsewhere) is “public” if:
11
2008 Website Guidance (cont’d)
12
 Recognized channel of distribution is a factual question
› How closely is website followed?
› Has company taken steps to direct public to look there as a
primary source of information?
› Companies, especially small and mid-sized, need to establish a
pattern of directing the public there and actually posting
› Early and often?
2008 Website Guidance (cont’d)
 Dissemination
› Is the information prominently placed or in a location
where such disclosures are known to be routinely
made?
› Is it easily accessible?
› Is a RSS feed or similar push technology available?
13
2013 Social Media Report
 Guidance in the form of an enforcement report
(but no penalties imposed)
 Resulted from enforcement investigation of Netflix
CEO posting (arguably) material information for the
first time on his personal (but public) Facebook
page
 Neither he nor Netflix had
previously used, or indicated
they would use, this Facebook
page to disclose material
information
14
2013 Social Media Report (cont’d)
 SEC report notes that social
media disclosures are
subject to Regulation FD
 Report merely extends
2008 website guidance to
social media – no “new”
guidance
 Some companies
announcing “laundry list”
approach – not clear this is
sufficient
15
Other Securities Concerns with Social Media
 General antifraud liability under Rule 10b-5
 Character limits – are links enough?
› Forward looking statements warnings
› Non-GAAP financial measure reconciliations
 Liability for content in third party hyperlinks
 Liability for imbalanced hyperlinks, posts
 Perpetual republishing of information
 Not well integrated into Regulation FD disclosure
policies and other company policies
16
Other Securities Concerns with Social Media
(Cont’d)
 Securities offerings
› “Gun jumping” concerns for
public offerings
› “General solicitation” concerns
for private placements
 JOBS Act may help
 Shareholder meeting proxy
solicitations
17
Other Legal Considerations
 Employment law issues regarding social media policies,
actions in response to postings
 Confidentiality/intellectual property exposure, leaks
 Privacy
 Harassment
18
General Best Practices for Securities Law
Compliance
 Adopt/update corporate policy designed to deal with
disclosure of material information and Regulation FD,
including social media
 Designate, and limit, individuals who are authorized to
speak on behalf of the company, including on social
media outlets
 Identify in advance who would need to be involved in
corrective disclosure
 Know what is public both from the company and from
the outside
19
General Best Practices for Securities Law
Compliance (cont’d)
 Integrate social media into any
company policy related to
communications/IR, and
continually review for updating
 Educate employees about
Regulation FD, social media issues
 Consider quarterly “quiet
periods”
 Use confidentiality agreements
 Maintain consistency and
patterns
20
Questions?
21
Contact Information:
Howard E. Berkenblit
Sullivan & Worcester LLP
One Post Office Square
Boston, MA 02109
TEL: (617) 338-2979
hberkenblit@sandw.com

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Sullivan & Worcester Social Media for IR

  • 1. The Use of Social Media in Investor Relations Securities Law Issues Howard E. Berkenblit Sullivan & Worcester LLP June 4, 2013
  • 2. What is Regulation FD?  “Fair Disclosure” › SEC’s effort to make information available to ALL investors equally without selective disclosure  Prohibits disclosure by certain persons acting on behalf of an issuer of material nonpublic information to particular individuals without simultaneous disclosure to the investing public 2
  • 3. What is “Material” Information?  No bright line test  Substantial likelihood that a reasonable shareholder would consider it important in making an investment decision  Substantial likelihood that a reasonable investor would view it as having significantly altered the total mix of information available 3
  • 4. What is “Material” Information? - Cont’d  Qualitative and quantitative determination  Can be direct or indirect (a wink or a nod can be as expressive as words)  Mosaic Theory - Can’t disguise by breaking into pieces, but a company can disclose information which is not material, even if it helps the other party complete a “mosaic” of information that, taken together, is material  Reaffirming information can be material 4
  • 5. Regulation FD Applies to Communications by:  Senior officials (executive officers and directors)  Investor relations and public relations personnel  Any other officer, employee or agent who regularly communicates with securities market professionals or security holders  Can’t direct someone not covered to make disclosure as a way around  Person who communicates in breach of a duty to issuer not considered acting on company’s behalf 5
  • 6. Regulation FD Applies to Communications to:  Analysts  Broker-dealers and their associated persons  Investment advisers and certain institutional managers and their associated persons  Investment companies and hedge funds  Security holders under circumstances in which it is reasonably foreseeable that such persons would purchase or sell on the basis of the information 6
  • 7. Regulation FD Does Not Apply to Communications to:  Persons who owe the company a duty of trust or confidence (e.g., attorney, investment banker, or accountant)  Persons who expressly agree to maintain the information in confidence  Employees (deemed to be part of the company)  Persons with whom the company communicates in the ordinary course (e.g., customers and suppliers)  Relating to most registered (but not private) securities offerings 7
  • 8. How are Subject Communications Made Available to the Public?  Methods are flexible as long as reasonably designed to effect broad, non-exclusionary distribution of information to the public › Press Release › Form 8-K (can be “filed” or “furnished”) › Disclosed during a pre-announced, open conference call › Website and social media (described later) › Combinations provide maximum protection 8
  • 9. What are the Potential Penalties for a Violation of Regulation FD?  SEC enforcement action › Disclosure rule, no liability for fraud solely as a result of failure to comply with Regulation FD › Cease and desist order › Civil action seeking injunction or penalties, but no private right of action › The existence of appropriate disclosure policies adopted by company may affect SEC decisions to pursue enforcement actions 9
  • 10. How Does Social Media Fit in with Regulation FD?  Not “traditional” Regulation FD disclosure method  2008 guidance allowed website posting, but subject to conditions  2013 report allows social media, subject to the same conditions 10
  • 11. 2008 Website Guidance  Website is “recognized channel of distribution”  Posting on the website disseminates the information in a manner making it available to the securities marketplace  There has been a reasonable waiting period for investors and the marketplace to react to the posted information Information initially posted on a website (but not elsewhere) is “public” if: 11
  • 12. 2008 Website Guidance (cont’d) 12  Recognized channel of distribution is a factual question › How closely is website followed? › Has company taken steps to direct public to look there as a primary source of information? › Companies, especially small and mid-sized, need to establish a pattern of directing the public there and actually posting › Early and often?
  • 13. 2008 Website Guidance (cont’d)  Dissemination › Is the information prominently placed or in a location where such disclosures are known to be routinely made? › Is it easily accessible? › Is a RSS feed or similar push technology available? 13
  • 14. 2013 Social Media Report  Guidance in the form of an enforcement report (but no penalties imposed)  Resulted from enforcement investigation of Netflix CEO posting (arguably) material information for the first time on his personal (but public) Facebook page  Neither he nor Netflix had previously used, or indicated they would use, this Facebook page to disclose material information 14
  • 15. 2013 Social Media Report (cont’d)  SEC report notes that social media disclosures are subject to Regulation FD  Report merely extends 2008 website guidance to social media – no “new” guidance  Some companies announcing “laundry list” approach – not clear this is sufficient 15
  • 16. Other Securities Concerns with Social Media  General antifraud liability under Rule 10b-5  Character limits – are links enough? › Forward looking statements warnings › Non-GAAP financial measure reconciliations  Liability for content in third party hyperlinks  Liability for imbalanced hyperlinks, posts  Perpetual republishing of information  Not well integrated into Regulation FD disclosure policies and other company policies 16
  • 17. Other Securities Concerns with Social Media (Cont’d)  Securities offerings › “Gun jumping” concerns for public offerings › “General solicitation” concerns for private placements  JOBS Act may help  Shareholder meeting proxy solicitations 17
  • 18. Other Legal Considerations  Employment law issues regarding social media policies, actions in response to postings  Confidentiality/intellectual property exposure, leaks  Privacy  Harassment 18
  • 19. General Best Practices for Securities Law Compliance  Adopt/update corporate policy designed to deal with disclosure of material information and Regulation FD, including social media  Designate, and limit, individuals who are authorized to speak on behalf of the company, including on social media outlets  Identify in advance who would need to be involved in corrective disclosure  Know what is public both from the company and from the outside 19
  • 20. General Best Practices for Securities Law Compliance (cont’d)  Integrate social media into any company policy related to communications/IR, and continually review for updating  Educate employees about Regulation FD, social media issues  Consider quarterly “quiet periods”  Use confidentiality agreements  Maintain consistency and patterns 20
  • 21. Questions? 21 Contact Information: Howard E. Berkenblit Sullivan & Worcester LLP One Post Office Square Boston, MA 02109 TEL: (617) 338-2979 hberkenblit@sandw.com