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SEC Clears Social Media for Company Announcements

Companies can reveal the information only if they notify shareholders ahead of time which social media accounts will be used.

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    NEWSLETTERS

    Executives are now allowed to use Facebook and Twitter to share corporate news.

    The Securities and Exchange Commission gave chief executives a green light to disseminate news about their companies via Twitter, Facebook or blogs, but Tuesday’s ruling embracing social media comes with a caveat.

    In line with the existing Regulation Fair Disclosure, known as Reg FD, companies can reveal information on social media only if they notify shareholders ahead of time which social media accounts will be used to release material information. The point of the rule is to ensure that all investors have access to the same information at the same time, according to All Things D.

    "One set of shareholders should not be able to get a jump on other shareholders just because the company is selectively disclosing important information," said George Cannellos, acting director of the SEC's Division of Enforcement, in a statement. "Most social media are perfectly suitable methods for communicating with investors, but not if the access is restricted or if investors don’t know that’s where they need to turn to get the latest news."’

    The new policy comes after Netflix CEO Reed Hastings used his personal Facebook account last year to announce that Netflix had surpassed one billion hours of streaming for the first time.

    Netflix’s stock price jumped after the news was posted. The SEC then launched an investigation into whether the post violated SEC’s fair disclosure rules because the news had not been shared with the investors through more traditional means of communication like a press release or SEC filing.

    The SEC eventually dropped its investigation, noting that there has been "uncertainty" about how companies and their CEOs should use social media for disclosing information.

    Tuesday’s ruling clarifies the agency’s position on social media, but it doesn’t mean all companies will adopt that strategy to communicate with shareholders, according to Mashable.

    "I think companies will be very cautious,"  David Balto, the former policy director for the Federal Trade Commission, told Mashable. The traditional methods that they relied on for years, I don't think you will see them vary a lot."

    The one thing that did seem to change is the SEC’s attitude toward social media. The regulator has been very cautious about corporate disclosure policies, according to The New York Times' DealB%k. Back in 2008, as part of Reg FD, the SEC decided that corporate Web sites are public enough if investors were already informed that those pages could be sources for company news. The Netflix incident forced the SEC to further relax its position.

    “The S.E.C. had to ask itself, How do we adopt a 2000 regulation to 2013 when social media is commonplace?” Thomas A. Sporkin, a former S.E.C. enforcement official told  DealB%k, referring to Reg FD. “That obviously wasn’t even a thought back when this was written.”

    With Tuesday's ruling the SEC seems to have acknowledged that social networks like Facebook and Twitter have  massive reach – exceeding 1.2 billion people on a monthly basis—and could prove more effective at keeping shareholders informed than the more traditional email blasts, newswire releases, or even SEC filings, according to All Things D.