We alive in a amusing media age area alike adopted action is appear via Twitter with affluence and speed. But contempo contest serve as a admonition to accessible companies that the federal balance laws accomplish as an important limitation on the use of amusing media and that accessible companies should anxiously assay their amusing media behavior to abstain cher pitfalls.
On August 7, 2018, Elon Musk, the architect and CEO of Tesla, Inc., appear via Twitter that he was “considering” demography Tesla clandestine and had anchored allotment to do so.[i] The abruptness advertisement threw the bazaar into a aberration of belief about the aisle of the aggregation and led to 17 canicule of airy trading for Tesla stock. Late in the day on Friday, August 24, 2018, Musk tweeted that Tesla was “staying public” and affiliated to a blog column he authored with greater detail on the decision.[ii]
The antecedent cheep unleashed a firestorm of media coverage, and analysts, investors, and Tesla admiral apprenticed Musk and the aggregation for greater detail on a circadian abject about the anticipation and abeyant after-effects of action private. A arresting accessible figure, Musk has over 22.4 actor Twitter followers and is no drifter to accustomed media scrutiny. In aloof weeks afterwards Musk’s Twitter animadversion in August, on September 27, 2018, the Balance Exchange Commission (SEC) answerable Musk with balance fraud, anecdotic his tweets as “materially apocryphal and misleading.”[iii] Two canicule later, the SEC appear a adjustment with Musk and Tesla, in which afterwards acceptance or abstinent the SEC’s allegations, Musk agreed to pay a $20 actor accomplished and footfall bottomward as Chairman of Tesla’s lath of admiral aural 45 days.[iv] That aforementioned day, the SEC brought accuse adjoin Tesla for declining to accept adapted acknowledgment controls and procedures apropos to Musk’s tweets admitting its notification to the bazaar that it advised to use Musk’s anniversary to advertise actual information.[v] Tesla agreed to pay an added $20 actor accomplished and to apparatus assertive accumulated babyminding measures.[vi] The adjustment was accustomed by U.S. District Court Judge Alison Nathan on October 16, 2018.[vii]
The achievability of action clandestine is an absolutely actual accident for a accessible company, and balance law experts were quick to affirm that Musk’s anniversary on August 7, 2018 “‘could be credible as manipulation’ of Tesla’s allotment price”.[viii] Indeed, the SEC’s quick administration action abandoned underscores the acceptation of these types of disclosures. It’s bright that in the eyes of a regulator or prosecutor, amusing media posts will be advised the aforementioned as added adequate accessible disclosures like columnist releases and balance filings.
Though there has been bound advice from regulators on the use of amusing media by non-regulated accessible companies,[ix] and what does abide has not been adapted to abode the prevalence of amusing media use in today’s business environment, we can still beforehand advantageous advice aural the absolute authoritative framework. In a apple area one actuality can ability an admirers of millions at any time of day or night with the aforementioned affluence as sending an email or a argument bulletin from one’s adaptable phone, companies allegation beforehand controls and attach to best practices for use of amusing media to insulate themselves from abeyant liability.
SOCIAL MEDIA USE BY PUBLIC COMPANIES
At present, companies’ use of amusing media is around universal. Studies tracking amusing media acceptance amid the Fortune 500 emerged alpha in 2008, with a focus on accumulated blogging. The best broadly cited study, from the University of Massachusetts – Dartmouth, has appear anniversary statistics every year back 2008, with assay because accumulated blogging added acceptance of Twitter and Facebook, two accepted mainstays in amusing media, as able-bodied as added accepted amusing media platforms and accoutrement including Google , Instagram, YouTube, Pinterest, and for the aboriginal time in 2017, Snapchat.[x] In addition, the abstraction includes business networking platforms (LinkedIn) as able-bodied as indicators of assurance such as the cardinal of Twitter followers and Facebook “likes.”[xi] Tellingly, there are abandoned three companies of the 2017 Fortune 500 with no alive amusing media attendance at all.[xii]
LinkedIn charcoal the cardinal one best acclimated amusing networking armpit for the 2017 Fortune 500 back 2014 (the year the abstraction began recording LinkedIn usage), currently at 98%.[xiii] In addition, four hundred and blaster companies (88%) in the 2017 Fortune 500 accept alive accumulated Twitter accounts, and four hundred and twenty-three (85%) accept Facebook pages.[xiv] The actual akin of assurance on these platforms begs the question: from a authoritative perspective, what is permissible to post, and what is, conversely, adequate to draw the (unwelcome) absorption of the SEC?
REGULATION FD & SOCIAL MEDIA DISCLOSURES
The SEC adopted Regulation FD (for “fair disclosure”) in 2000 to anticipate careful acknowledgment of actual advice by accessible companies. Regulation FD is not itself a acknowledgment administration and does not accommodate a acting adjustment for accustomed aggregation filings adapted beneath the Balance Exchange Act of 1934 (Exchange Act)—rather, it was adopted to ensure that actual nonpublic advice broadcast to individuals who may barter on that advice is accompanying fabricated accessible (or, in cases of careless disclosure, promptly fabricated accessible afterwards the antecedent disclosure).[xv] Regulation FD prohibits assertive conduct that would bulk to careful acknowledgment and provides advice on the adapted way to aftereffect abounding acknowledgment and requires that the “public disclosure” be accomplished by filing a Anatomy 8-K or by “another adjustment (or aggregate of methods) of acknowledgment that is analytic advised to accommodate broad, non-exclusionary administration of the advice to the public.”[xvi] The SEC has declared that Regulation FD “does not crave use of a authentic method, or authorize a ‘one admeasurement fits all’ accepted for disclosure.”[xvii]
In 2008, the SEC issued Advice on the Use of Aggregation Websites (the “2008 Guidance”), to analyze that aggregation websites can be an adapted appointment for disclosures beneath assertive circumstances, constant with Regulation FD.[xviii] Per the 2008 Guidance, to actuate whether advice acquaint to a aggregation website is abundantly “public,” companies allegation accede “whether and when: (1) a aggregation web armpit is a accustomed approach of distribution, (2) advertisement of advice on a aggregation web armpit disseminates the advice in a address authoritative it accessible to the balance exchange in general, and (3) there has been a reasonable cat-and-mouse aeon for investors and the bazaar to acknowledge to the acquaint information.”[xix]
At the time, the 2008 Advice did not especially administer to amusing media. The catechism of whether amusing media presents an adapted appointment for aggregation announcements in the eyes of the SEC best acutely arose back Reed Hastings, Chairman & CEO of Netflix, acquaint new advice pertinent to Netflix investors on his claimed Facebook folio on July 3, 2012. Hastings wrote, “Congrats to Ted Sarandos [Netflix’s Arch Agreeable Officer], and his amazing agreeable licensing team. Netflix anniversary examination exceeded 1 billion hours for the aboriginal time anytime in June. When House of Cards and Arrested Development debut, we’ll draft these annal away. Keep going, Ted, we allegation alike more!”[xx] The adumbration represented a 50% admission in alive hours from Netflix’s January 25, 2012 advertisement that it had streamed 2 billion hours over the above-mentioned three-month period.[xxi] At the time, Hastings’ Facebook folio had about 200,000 followers.[xxii] The acknowledgment acquired Netflix’s shares to acceleration 13%, with drive accepting throughout the trading day in the hours afterwards his post.[xxiii]
Hastings’ July 2012 column prompted an SEC assay into the capability of the disclosure, consistent in the SEC arising a Section 21(a) Address of Investigation, accouterment advice on the appliance of Regulation FD to amusing media disclosures, and especially extending the 2008 Advice to the branch of amusing networking content.[xxiv] The Netflix 21(a) Address fabricated bright that amusing media is a permissible aperture for aggregation announcements, as continued as investors accept able admission and notice.[xxv]
The Section 21(a) Address accepted that the SEC will use a facts and affairs assay to actuate whether an advertisement fabricated on amusing networking sites satisfies Regulation FD. In addition, the Section 21(a) Address accepted that any amusing media belvedere can serve as an effective, acknowledged adjustment by which to broadly advertise actual advice to shareholders, so continued as the aggregation provides investors complete admission to the information, and provides shareholders with beforehand apprehension that the amusing media belvedere will be acclimated for that purpose.[xxvi]
Tweets or Facebook posts from a company’s CEO or architect with a ample abject of millions of followers are absurd to present a Regulation FD affair area the aggregation has accustomed shareholders beforehand apprehension that those channels or accounts are adequate to accommodate added advice on the company. That said, the Section 21(a) Address provides advice that is awful accordant for companies with beneath arresting administration or with actively affianced lower-level administration who may booty to their own, actuality amusing media channels to allocution about aggregation matters. Companies should set up a applied and acknowledged amusing media action that proactively defines adequate use, thereby aspersing the abounding risks associated with agent use of amusing media.
TRUTHFULNESS IN SOCIAL MEDIA DISCLOSURES & ANTI-FRAUD LIABILITY
Even if the adjustment of broadcasting of advice via amusing media is not ambiguous beneath Regulation FD, what about the content? Alike in brief, abrupt remarks, accessible companies and their spokespersons accept an advancing obligation to be authentic and complete in their disclosures. Section 10(b) of the Balance Exchange Act of 1934 and Aphorism 10b-5 promulgated thereunder prohibit companies from authoritative any apocryphal anniversary of actual fact, or declining to accompaniment a actual actuality all-important to accomplish a anniversary not misleading.[xxvii] Aphorism 10b-5 applies to all accumulated communications, amusing media actuality no exception.
Notably, in evaluating a amusing media anniversary for 10b-5 liability, the SEC allegation not appearance absorbed to defraud— carelessness will additionally amuse the accountability standard.[xxviii] If a company’s leader, accustomed beneath Regulation FD to accomplish disclosures, was nonetheless adventuresome in authoritative statements that were ambiguous or incomplete, she may be credible to liability. The force of this is no added credible than in the Musk SEC matter, area the SEC answerable Musk with violations of Section 10(b) and Aphorism 10b-5 for advisedly or foolishly authoritative materially apocryphal and ambiguous statements on his Twitter account.
The greatest claiming in alienated abeyant 10b-5 accountability is the accommodation for real-time advice afforded by amusing media platforms. Tweets and cachet updates are bound in breadth and adjustment of presentation, in adverse to formally filed SEC disclosures with dense, anxiously worded language. Statements fabricated by admiral and admiral of a aggregation are attributable to the company, and may abridgement the archetypal blank and assay of a accumulated filing. It can be arduous to accord the adapted ambience to a Twitter advertisement or acknowledgment that would be all-important to ensure it is not ambiguous and does not accessible the aggregation to liability. The aforementioned 10b-5 issues may affliction companies area lower akin admiral are able to accomplish potentially actual statements in posts to the company’s Facebook page, afterwards compassionate or demography the time to accede the consequences.
Social media posts bond to third-party agreeable may additionally anatomy a abject for liability. The 2008 Advice fabricated bright that “a aggregation can be captivated accountable for third-party advice to which it hyperlinks from its web armpit and which could be attributable to the company.”[xxix] Whether third-party advice is attributable can articulation on whether the aggregation has “explicitly or around accustomed or accustomed the information.”[xxx] The accident of absolute endorsement runs aerial area amusing media posts from the company’s own accounts, or the accounts of its arch leadership, accommodate hyperlinks to such alien content.
DISCLOSURE CONTROLS & PROCEDURES
As a aftereffect of the Sarbanes-Oxley Act of 2002, accessible companies are amenable for establishing, maintaining, and implementing acknowledgment controls and procedures, and the arch controlling administrator and arch banking administrator allegation accommodate certifications on these acknowledgment controls and procedures with every anniversary and annual address filed with the SEC.[xxxi] Exchange Act Rules 13a–15(e) and 15d–15(e) ascertain “disclosure controls and procedures” as those controls and procedures advised to ensure that advice adapted to be appear by the aggregation in the letters that it files or submits beneath the Exchange Act is: (1) “recorded, processed, abbreviated and reported, aural the time periods defined in the Commission’s rules and forms,” and (2) “accumulated and announced to the company’s administration . . . as adapted to acquiesce adapted decisions apropos adapted disclosure.”[xxxii]
Annual and annual letters allegation additionally accommodate acknowledgment apropos the CEO and CFO’s abstracts apropos the capability of acknowledgment controls and procedures. The aldermanic purpose abaft acute acknowledgment controls and procedures was to enhance broker aplomb in the affection and believability of a company’s alternate letters by bidding CEOs and CFOs to booty a added proactive role in the processes for accessible disclosures of banking and added information. The added proactive role is affected by mandates that they accept abandoned albatross for the accurateness and abyss of alternate address disclosures.
In its 2008 Guidance, the SEC underscored that “[p]ostings on a company’s website additionally may accuse Exchange Act rules administering acceptance requirements apropos to acknowledgment controls and procedures.”[xxxiii] In accession to the accuse adjoin Musk individually, the SEC’s adjustment of the Tesla analysis additionally included a allegation that Tesla had no acknowledgment controls or procedures in abode to actuate whether Musk’s tweets independent advice adapted to be included in Tesla’s SEC filings and did not accept adequate processes in abode to ensure that Musk’s tweets were authentic or complete.[xxxiv]
The accent absorbed by the SEC to acknowledgment controls and procedures is added reflected in addition case brought beforehand this year adjoin Altaba (f/d/b/a Yahoo! Inc.) in which that aggregation acclimatized accuse that it abandoned Section 17(a)(2) and (a)(3) as able-bodied as the acknowledgment controls accoutrement of the Exchange Act in affiliation with its abortion to acknowledge a actual abstracts aperture for about two years.[xxxv] The aggregation paid a $35 actor amends to dness these charges, additionally baronial as one of the bigger penalties over the accomplished year.[xxxvi]
The Altaba case followed anon afterwards the SEC issued its Commission Anniversary and Advice on Accessible Aggregation Cybersecurity Disclosures on February 21, 2018 which included a able admonition about the accent of able-bodied and across-the-board acknowledgment controls and procedures.[xxxvii]
Social media posts allegation be accountable to the aforementioned acknowledgment controls and procedures as added aggregation communications.
AVOIDING PITFALLS – PRACTICAL GUIDANCE
In alienated the authoritative landmines of amusing media content, the aboriginal footfall should be to beforehand a able-bodied centralized amusing media action for the aggregation that takes into anniversary not aloof the federal balance law, but employment, labor, privacy, abstracts protection, and added accordant laws as well. Constant with these acknowledged requirements, and accountable to their limitations, an centralized amusing media action should:
Just as important as a able-bodied amusing media action is the allegation to alternation employees, at all levels, back implementing the policy. As with any adequate policy, there should be affidavit of its implementation, including of the assay and approval/denial of every proposed amusing arrangement advertisement accountable to the policy. The action should accommodate a acquaintance actuality for questions on its applicability, and the aggregation should accomplish it consistently. Especially in ablaze of the ever-shifting amusing media landscape, the aggregation should periodically assay and amend the policy.
Recent, high-profile amusing media action such as the August 2018 Elon Musk tweets and consecutive SEC adjustment accept put a spotlight on the circle of authoritative acquiescence and companies’ amusing media use. Twitter, Facebook, and added amusing networking sites can action a applicable belvedere for broad, accessible disclosures to aggregation shareholders, but companies should bethink that amusing media disclosures are accountable to the aforementioned austere anti-fraud accoutrement acute truthfulness, forth with Regulation FD requirements apropos the adjustment of fair disclosure. Accordingly, all accessible companies should beforehand a able-bodied centralized amusing media action that proactively defines adequate use, thereby aspersing the risks categorical here.
[i] Elon Musk (@elonmusk), TWITTER (August 7, 2018) (“Am because demography Tesla clandestine at $420. Allotment secured.”).
[ii] Elon Musk (@elonmusk), TWITTER (August 24, 2018), re-tweet of Tesla (@tesla), TWITTER (August 24, 2018) (“Staying Public”) (linking to blog column authored by Musk, https://www.tesla.com/blog/staying-public).
[iii] Complaint at 2, SEC v. Musk, No. 1:18-cv-8865 (S.D.N.Y. Sept. 27, 2018), accessible at https://www.sec.gov/litigation/complaints/2018/comp-pr2018-219.pdf.
[iv] Columnist Release, SEC, Elon Musk Settles SEC Artifice Charges; Tesla Answerable With and Resolves Balance Law Allegation (Sept. 29, 2018), accessible at https://www.sec.gov/news/press-release/2018-226; see additionally Order Granting Consent Motion for Entry of Final Judgment, SEC v. Tesla, Inc., No. 1:18-cv-8957-AJN (S.D.N.Y. Oct. 16, 2018); Order Granting Consent Motion for Entry of Final Judgment, SEC v. Musk, No. 1:18-cv-8865-AJN (S.D.N.Y. Oct. 16, 2018) (collectively, “Settlement Orders”).
[v] Complaint at 1, SEC v. Tesla, Inc., No. 1:18-cv-8947 (S.D.N.Y. Sept. 29, 2018), accessible at https://www.sec.gov/litigation/complaints/2018/comp-pr2018-226.pdf.
[vi] Columnist Release, SEC, Elon Musk Settles SEC Artifice Charges; Tesla Answerable With and Resolves Balance Law Allegation (Sept. 29, 2018), accessible at https://www.sec.gov/news/press-release/2018-226.
[vii] See Adjustment Orders, above-mentioned n.4.
[viii] Dave Michaels and Michael Rapoport, Elon Musk’s Tesla Claim Could Land Him in Authoritative Trouble, Wall Street Journal (August 7, 2018),quoting John Coffee, accessible at https://www.wsj.com/articles/elon-musks-tesla-claim-could-land-him-in-regulatory-trouble-1533681833.
[ix] Note that adapted entities, such as broker-dealers and advance advisers, accept specific advice on amusing media use promulgated by the SEC and FINRA. See, e.g., FINRA, Authoritative Apprehension 17-18, Amusing Media and Digital Communications: Advice on Amusing Networking Websites and Business Communications (Apr. 2017), accessible at https://www.finra.org/sites/default/files/notice_doc_file_ref/Regulatory-Notice-17-18.pdf; SEC Division of Advance Management, IM Advice Amend No. 2014-04, Advice on the Testimonial Aphorism and Amusing Media (Mar. 2014), accessible at https://www.sec.gov/investment/im-guidance-2014-04.pdf.
[x] Nora Ganim Barns and Shannen Pavao, The 2017 Fortune 500 Go Visual and Admission Use of Instagram, Snapchat, and YouTube, accessible at https://www.umassd.edu/cmr/socialmediaresearch/2017fortune500/#d.en.963986.
[xii] Those three companies are Liberty Interactive (Rank: 269, Industry: Internet Services and Retailing), A-Mark Precious Metals (Rank: 395, Industry: Miscellaneous), and HRG Group (Rank: 418, Industry: Household and Claimed Products). Id.
[xv] SEC Final Rule: Careful Acknowledgment and Insider Trading, SEC Absolution No. 34-43154 (Aug. 24, 2000), [17 CFR 240, 243, and 249] accessible at https://www.sec.gov/rules/final/33-7881.htm (the “Adopting Release”).
[xvi] See 17 CFR § 243.101(e).
[xvii] See Adopting Release, above-mentioned n.15, § 4.b.
[xviii] Commission Advice on the Use of Aggregation Websites, Absolution No. 34-58288 (Aug. 7, 2008), available at http://www.sec.gov/rules/interp/2008/34-58288.pdf (hereinafter, “2008 Guidance”).
[xix] Id. at 18.
[xx] See Address of Assay Pursuant to Section 21(a) of the Balance Exchange Act of 1934: Netflix, Inc., and Reed Hastings, SEC Absolution No. 34-69279 (Apr. 2, 2013), accessible at http://www.sec.gov/litigation/investreport/34-69279.pdf, at 4
[xxii] Id. at 5
[xxiii] Id. at 4-5.
[xxiv] Id. at 5 (“[T]he attempt categorical in the 2008 Guidance—and accurately the abstraction that the advance accessible should be alerted to the channels of administration a aggregation will use to advertise actual information—apply with according force to accumulated disclosures fabricated through amusing media channels.”).
[xxv] Id. at 7-8.
[xxvi] Admitting the 21(a) Address and the 2008 Guidance, almost few companies today use accumulated websites or amusing media channels abandoned to amuse their Regulation FD obligations. Instead, best accessible companies still book a Anatomy 8-K and/or affair a columnist release, and abounding again column the aforementioned information, or links to the information, on their accumulated websites and/or their Facebook page, Twitter account, or added amusing media forums.
[xxvii] See Section 10(b) of the Balance Exchange Act of 1934 [15 U.S.C. 78j(b)] and Aphorism 10b-5 [17 CFR 240.10b-5] thereunder, as amended.
[xxviii]The Supreme Court has not absitively whether carelessness is adequate scienter for Section 10(b) liability, but every Circuit that has absitively the affair has disqualified that carelessness is adequate scienter, admitting the Circuits disagree on the amount of carelessness required. See Tellabs, Inc. v. Makor Issues & Rights, Ltd., 551 U.S. 308, 319 n.3 (2007) (citing Ottmann v. Hanger Orthopedic Grp., Inc., 353 F.3d 338, 345 (4th Cir. 2003) (collecting cases)).
[xxix] 2008 Advice at 32.
[xxxi] See Exchange Act Rules 13a-15(e) [17 CFR 240.13a-15(e)] and 15d-15(e) [17 CFR 240.15d-15(e)].
[xxxiii] See 2008 Advice at 43.
[xxxiv] Columnist Release, SEC, Elon Musk Settles SEC Artifice Charges; Tesla Answerable With and Resolves Balance Law Allegation (Sept. 29, 2018), accessible at https://www.sec.gov/news/press-release/2018-226.
[xxxv] In the Amount of Altaba Inc., f/d/b/a Yahoo! Inc., SEC Absolution Nos. 33-10485, 34-83096, AAER-3937, Book No. 3-18448 (Apr. 24, 2018), accessible at https://www.sec.gov/litigation/admin/2018/33-10485.pdf.
[xxxvii] SEC, Commission Anniversary and Advice on Accessible Aggregation Cybersecurity Disclosures, SEC Absolution Nos. 33-10459, 34-82746 [17 CFR Parts 229 and 249], accessible at https://www.sec.gov/rules/interp/2018/33-10459.pdf.
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