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

1. The Use of Social Media
in Investor Relations
Securities Law Issues
Howard E. Berkenblit
Sullivan & Worcester LLP
June 4, 2013

2. What is Regulation FD?
 “Fair Disclosure”
› SEC’s effort to make information
available to ALL investors equally
without selective disclosure
 Prohibits disclosure by certain
persons acting on behalf of an
issuer of material nonpublic
information to particular
individuals without simultaneous
disclosure to the investing public
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3. What is “Material” Information?
 No bright line test
 Substantial likelihood that a reasonable shareholder
would consider it important in making an investment
decision
 Substantial likelihood that a reasonable investor would
view it as having significantly altered the total mix of
information available
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4. What is “Material” Information? - Cont’d
 Qualitative and quantitative
determination
 Can be direct or indirect (a wink or a
nod can be as expressive as words)
 Mosaic Theory - Can’t disguise by
breaking into pieces, but a company
can disclose information which is
not material, even if it helps the
other party complete a “mosaic” of
information that, taken together, is
material
 Reaffirming information can be
material
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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 regularly
communicates with securities market professionals or
security holders
 Can’t direct someone not covered to make disclosure as
a way around
 Person who communicates in breach of a duty to issuer
not considered acting on company’s behalf
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6. Regulation FD Applies to Communications to:
 Analysts
 Broker-dealers and their associated
persons
 Investment advisers and certain
institutional managers and their
associated persons
 Investment companies and hedge
funds
 Security holders under circumstances
in which it is reasonably foreseeable
that such persons would purchase or
sell on the basis of the information
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7. Regulation FD Does Not Apply to Communications to:
 Persons who owe the company a duty of trust or
confidence (e.g., attorney, investment banker, or
accountant)
 Persons who expressly agree to maintain the
information in confidence
 Employees (deemed to be part of the company)
 Persons with whom the company communicates in
the ordinary course (e.g., customers and suppliers)
 Relating to most registered (but not private) securities
offerings
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8. How are Subject Communications Made Available
to the Public?
 Methods are flexible as long as reasonably designed
to effect broad, non-exclusionary distribution of
information to the public
› Press Release
› Form 8-K (can be “filed”
or “furnished”)
› Disclosed during a
pre-announced, open
conference call
› Website and social media (described later)
› Combinations provide maximum protection
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9. What are the Potential Penalties for a Violation of
Regulation FD?
 SEC enforcement action
› Disclosure rule, no liability for fraud
solely as a result of failure to comply
with Regulation FD
› Cease and desist order
› Civil action seeking injunction or
penalties, but no private right of action
› The existence of appropriate disclosure
policies adopted by company may
affect SEC decisions to pursue
enforcement actions
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10. How Does Social Media Fit in with Regulation FD?
 Not “traditional” Regulation
FD disclosure method
 2008 guidance allowed
website posting, but subject
to conditions
 2013 report allows social
media, subject to the same
conditions
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11. 2008 Website Guidance
 Website is “recognized channel of distribution”
 Posting on the website disseminates the information in a
manner making it available to the securities marketplace
 There has been a reasonable waiting period for investors
and the marketplace to react to the posted information
Information initially posted on a website (but not
elsewhere) is “public” if:
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12. 2008 Website Guidance (cont’d)
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 Recognized channel of distribution is a factual question
› How closely is website followed?
› Has company taken steps to direct public to look there as a
primary source of information?
› Companies, especially small and mid-sized, need to establish a
pattern of directing the public there and actually posting
› Early and often?

13. 2008 Website Guidance (cont’d)
 Dissemination
› Is the information prominently placed or in a location
where such disclosures are known to be routinely
made?
› Is it easily accessible?
› Is a RSS feed or similar push technology available?
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14. 2013 Social Media Report
 Guidance in the form of an enforcement report
(but no penalties imposed)
 Resulted from enforcement investigation of Netflix
CEO posting (arguably) material information for the
first time on his personal (but public) Facebook
page
 Neither he nor Netflix had
previously used, or indicated
they would use, this Facebook
page to disclose material
information
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15. 2013 Social Media Report (cont’d)
 SEC report notes that social
media disclosures are
subject to Regulation FD
 Report merely extends
2008 website guidance to
social media – no “new”
guidance
 Some companies
announcing “laundry list”
approach – not clear this is
sufficient
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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 disclosure
policies and other company policies
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17. Other Securities Concerns with Social Media
(Cont’d)
 Securities offerings
› “Gun jumping” concerns for
public offerings
› “General solicitation” concerns
for private placements
 JOBS Act may help
 Shareholder meeting proxy
solicitations
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18. Other Legal Considerations
 Employment law issues regarding social media policies,
actions in response to postings
 Confidentiality/intellectual property exposure, leaks
 Privacy
 Harassment
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19. General Best Practices for Securities Law
Compliance
 Adopt/update corporate policy designed to deal with
disclosure of material information and Regulation FD,
including social media
 Designate, and limit, individuals who are authorized to
speak on behalf of the company, including on social
media outlets
 Identify in advance who would need to be involved in
corrective disclosure
 Know what is public both from the company and from
the outside
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20. General Best Practices for Securities Law
Compliance (cont’d)
 Integrate social media into any
company policy related to
communications/IR, and
continually review for updating
 Educate employees about
Regulation FD, social media issues
 Consider quarterly “quiet
periods”
 Use confidentiality agreements
 Maintain consistency and
patterns
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21. Questions?
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Contact Information:
Howard E. Berkenblit
Sullivan & Worcester LLP
One Post Office Square
Boston, MA 02109
TEL: (617) 338-2979
hberkenblit@sandw.com