More On Legal & Compliancefrom The Advisor's Professional Library
- Use and Misuse of Social Media Social media is an inexpensive and effective way to communicate with established and prospective clients. Nevertheless, when RIAs utilize social media to promote their advisory practices, they risk compliance problems for their firms.
- Risk-Based Oversight of Investment Advisors Even if the SEC had a larger budget and more resources, it is doubtful that the Commission would have the resources to regularly examine all RIAs. Therefore, the SEC is likely to continue relying on risk-based oversight to fulfill its mission of protecting investors.
WASHINGTON (AP) — The Securities and Exchange Commission will allow public companies to make significant announcements on Facebook, Twitter and other social media sites provided they alert investors which sites they intend to use.
The decision announced Tuesday allows companies to use social media in place of more formal websites.
The question arose after Netflix Inc. CEO Reed Hastings said on his Facebook page in July that subscribers together watched more than 1 billion hours of video for the first time during June, the agency said.
An SEC rule requires that all investors receive significant company information at the same time. By allowing businesses to use more informal channels to share news with investors, the SEC is acknowledging the shift in technology that has made social media indispensable for the largest and most powerful corporations.
One key requirement is that companies alert investors in press releases or regulatory filings as to where they plan to disseminate information that could potentially affect the price of the company's stock.
Although Hastings didn't provide any further details, the statistic implied that the usage of Netflix's Internet video library had increased significantly since the company had last provided viewership numbers six months earlier. Analysts interpreted the new viewership numbers as a sign that Netflix either hit the top end of its second-quarter goal for streaming subscribers or exceeded it.
Netflix stock jumped from $70.45 at the time of Hastings' Facebook post to $81.72 at the close of the next trading day.
Neither Hastings nor Netflix had previously used Facebook to announce company information and they hadn't notified investors that Facebook might be used for that purpose, the SEC said Tuesday. The agency's enforcement division opened an inquiry but took no action against Hastings or Netflix nor alleged any wrongdoing.
Rather, the SEC decided to issue the guidance for all companies, saying they should take care to disseminate information through social media in a way that all people will have access to it.
Netflix said in a statement Tuesday, "We appreciate the SEC's careful consideration and resolution of this matter."