Publicly traded companies can now make important announcements through social media networks, but they must inform their investors which sites will be used, according to the US Securities and Exchange Commission (SEC).
On Tuesday, the SEC issued new disclosure rules allowing firms to use social media networks such as Twitter and Facebook in lieu of more formal websites. However, the new rules could curb spontaneity, as firms will likely make their announcements on official corporate accounts.
This ruling arose after Netflix’s CEO Reed Hastings announced on his personal Facebook page last July that the company had hit a new milestone: its subscribers viewed over one billion hours of video for the first time in June 2012.
However, the SEC warned that Hastings’ post on Facebook violated the watchdog’s Fair Disclosure rules, which require public companies to simultaneously provide important information to investors.
Although Hastings’ announcement was posted on a publicly available page with over 200,000 followers, the information was not disclosed in a news release or securities filing.
He argued that his Facebook post was both insignificant and easily available to investors. “We use blogging and social media, including Facebook, to communicate effectively with the public and our members,” said Hastings.
Interestingly, Netflix’s shares soared from US$70.45 during the time of Hastings’ post to US$81.72 at the end of trading on the following day.
“One set of shareholders should not be able to get a jump on other shareholders just because the company is selectively disclosing important information,” added George S. Canellos, Acting Enforcement Chief of SEC.