Sullivan & Worcester Social Media for IR


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Sullivan & Worcester discusses securities law issues surrounding the use of social media for investor relations.

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Sullivan & Worcester Social Media for IR

  1. 1. The Use of Social Mediain Investor RelationsSecurities Law IssuesHoward E. BerkenblitSullivan & Worcester LLPJune 4, 2013
  2. 2. What is Regulation FD? “Fair Disclosure”› SEC’s effort to make informationavailable to ALL investors equallywithout selective disclosure Prohibits disclosure by certainpersons acting on behalf of anissuer of material nonpublicinformation to particularindividuals without simultaneousdisclosure to the investing public2
  3. 3. What is “Material” Information? No bright line test Substantial likelihood that a reasonable shareholderwould consider it important in making an investmentdecision Substantial likelihood that a reasonable investor wouldview it as having significantly altered the total mix ofinformation available3
  4. 4. What is “Material” Information? - Cont’d Qualitative and quantitativedetermination Can be direct or indirect (a wink or anod can be as expressive as words) Mosaic Theory - Can’t disguise bybreaking into pieces, but a companycan disclose information which isnot material, even if it helps theother party complete a “mosaic” ofinformation that, taken together, ismaterial Reaffirming information can bematerial4
  5. 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 regularlycommunicates with securities market professionals orsecurity holders Can’t direct someone not covered to make disclosure asa way around Person who communicates in breach of a duty to issuernot considered acting on company’s behalf5
  6. 6. Regulation FD Applies to Communications to: Analysts Broker-dealers and their associatedpersons Investment advisers and certaininstitutional managers and theirassociated persons Investment companies and hedgefunds Security holders under circumstancesin which it is reasonably foreseeablethat such persons would purchase orsell on the basis of the information6
  7. 7. Regulation FD Does Not Apply to Communications to: Persons who owe the company a duty of trust orconfidence (e.g., attorney, investment banker, oraccountant) Persons who expressly agree to maintain theinformation in confidence Employees (deemed to be part of the company) Persons with whom the company communicates inthe ordinary course (e.g., customers and suppliers) Relating to most registered (but not private) securitiesofferings7
  8. 8. How are Subject Communications Made Availableto the Public? Methods are flexible as long as reasonably designedto effect broad, non-exclusionary distribution ofinformation to the public› Press Release› Form 8-K (can be “filed”or “furnished”)› Disclosed during apre-announced, openconference call› Website and social media (described later)› Combinations provide maximum protection8
  9. 9. What are the Potential Penalties for a Violation ofRegulation FD? SEC enforcement action› Disclosure rule, no liability for fraudsolely as a result of failure to complywith Regulation FD› Cease and desist order› Civil action seeking injunction orpenalties, but no private right of action› The existence of appropriate disclosurepolicies adopted by company mayaffect SEC decisions to pursueenforcement actions9
  10. 10. How Does Social Media Fit in with Regulation FD? Not “traditional” RegulationFD disclosure method 2008 guidance allowedwebsite posting, but subjectto conditions 2013 report allows socialmedia, subject to the sameconditions10
  11. 11. 2008 Website Guidance Website is “recognized channel of distribution” Posting on the website disseminates the information in amanner making it available to the securities marketplace There has been a reasonable waiting period for investorsand the marketplace to react to the posted informationInformation initially posted on a website (but notelsewhere) is “public” if:11
  12. 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 aprimary source of information?› Companies, especially small and mid-sized, need to establish apattern of directing the public there and actually posting› Early and often?
  13. 13. 2008 Website Guidance (cont’d) Dissemination› Is the information prominently placed or in a locationwhere such disclosures are known to be routinelymade?› Is it easily accessible?› Is a RSS feed or similar push technology available?13
  14. 14. 2013 Social Media Report Guidance in the form of an enforcement report(but no penalties imposed) Resulted from enforcement investigation of NetflixCEO posting (arguably) material information for thefirst time on his personal (but public) Facebookpage Neither he nor Netflix hadpreviously used, or indicatedthey would use, this Facebookpage to disclose materialinformation14
  15. 15. 2013 Social Media Report (cont’d) SEC report notes that socialmedia disclosures aresubject to Regulation FD Report merely extends2008 website guidance tosocial media – no “new”guidance Some companiesannouncing “laundry list”approach – not clear this issufficient15
  16. 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 disclosurepolicies and other company policies16
  17. 17. Other Securities Concerns with Social Media(Cont’d) Securities offerings› “Gun jumping” concerns forpublic offerings› “General solicitation” concernsfor private placements JOBS Act may help Shareholder meeting proxysolicitations17
  18. 18. Other Legal Considerations Employment law issues regarding social media policies,actions in response to postings Confidentiality/intellectual property exposure, leaks Privacy Harassment18
  19. 19. General Best Practices for Securities LawCompliance Adopt/update corporate policy designed to deal withdisclosure of material information and Regulation FD,including social media Designate, and limit, individuals who are authorized tospeak on behalf of the company, including on socialmedia outlets Identify in advance who would need to be involved incorrective disclosure Know what is public both from the company and fromthe outside19
  20. 20. General Best Practices for Securities LawCompliance (cont’d) Integrate social media into anycompany policy related tocommunications/IR, andcontinually review for updating Educate employees aboutRegulation FD, social media issues Consider quarterly “quietperiods” Use confidentiality agreements Maintain consistency andpatterns20
  21. 21. Questions?21Contact Information:Howard E. BerkenblitSullivan & Worcester LLPOne Post Office SquareBoston, MA 02109TEL: (617)