The SEC’s Archaic Enforcement of Fair Disclosure Laws in the Age of Social Media


Looking around the world, it is very clear that the internet, and social media specifically, have touched all aspects of life.  Whether it is the new reality of shopping, and the impact e-commerce has had on the global economy or the Arab Spring Revolutions, which successfully leveraged social media, no part of the human experience remains untouched.  The SEC, however, is attempting to cram the genie back inside the bottle and deny social media’s impacts on the securities markets.

On October 23, 2000, the SEC passed Regulation FD, or Regulation Fair Disclosure.  As the name implies, the purpose of the regulation was to help level the playing field by essentially forbidding selective disclosure.  It requires issuers disclosing material non-public information to selected individuals to simultaneously (or shortly thereafter) disclose that information to the general public through either Form 8-K, or “another method or combination of methods that is reasonably designed to effect broad, non-exclusionary distribution of the information to the public.”   The specific evil that the regulation  was designed to combat was an industry practice of disclosing quarterly earnings and other information only to institutional investors and investment analysts, to the detriment of the small investor and public at large.

Regulation FD has seemingly spiraled out of control and spawned unintended consequences, which, in the era of social media, has undermined its very raison d’être. In July, Netflix CEO, Reed Hastings, posted on the company’s Facebook page that “Netflix monthly viewing exceeded 1 billion hours for the first time ever in June.”  Shortly thereafter, the SEC contacted the publicly traded Netflix to inform them that the SEC was going to begin pursuing either, a cease and desist order from postings on Facebook or civil injunction.  This seems surprising considering that the Netflix Facebook page has 244,000 subscribers and is open to the public—anyone interested can see it.  Putting aside the question of whether the information was material, a more fundamental question is at play—in an era when revolutions are coordinated in 140 characters or less, what is considered public disclosure?

Clearly, though, the securities industry is spooked.   On January 2, 2013, Avis Budget announced that it was acquiring Zipcar.  What followed over the next 72 hours shows the reverberations of the SEC’s decision against Netflix.  Zipcar filed 4 different Form 8-Ks: one announcing the takeover, another with the transcription of a conference call with investors, another disclosing a Twitter post, and another disclosing a Facebook post.  Ostensibly, this is a bad thing for the future of disclosure.  If every tweet needs to be accompanied by an SEC filing, companies will gradually stop posting information in the public domain.  Instead, they will only publish their information through the traditional channels of conference calls and Form 8-K filings.  The average American, the very person who was sought to be protected by the passing of Regulation FD, is the one who will be hurt. While some find great pleasure in poring over hundreds of SEC filings trying to glean information, most people would more effectively learn about public companies from their online presence, be it Facebook, Twitter, or somewhere else on the Web.

By forcing companies away from social media and the new online public sphere and back into the more formal confines of SEC filings or press releases, information will become less readily available.  While this may force some institutional investors to shift their focus away from the traditional methods of research, it is time.  The securities markets are constantly changing and investors will adapt to the new norm – especially considering that compared to a tweet, a Form 8-K filing is a selective disclosure.  Although 8-Ks are publicly available to anyone who looks for them, tweets, status updates and postings are easier to find.  The 21st Century has arrived and the information superhighway has redefined the public space – it is time for the SEC to acknowledge that and allow both business and transparency to flourish.


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Fordham Journal of Corporate & Financial Law