The Securities and Exchange Commission is getting social.
Last month, the federal regulator published a guidance update to clarify what mutual funds and other investment advisors can say on their social media sites.
The guidance makes it clear for the first time that public companies can use social media outlets such as Facebook and Twitter to announce key information in compliance with Regulation Fair Disclosure as long as investors know where to look for the information.
Also, an incidental mention of a specific investment company or family of funds not related to a discussion of the funds' investments need not be filed with Financial Industry Regulatory Authority.
Notes like these, for instance: "Fund X Family of Funds invites you to their annual benefit for XYZ Charity" or "More than 100 Fund X employees volunteered for our Annual Day of Public Service."
Also, the incidental use of the word "performance" in connection with a discussion of an investment company or family of funds, without specific mention of a fund's return (i.e., 1, 5 and 10 year performance) is kosher, according to the SEC's latest guidelines. For example: "We update the performance of our funds every month and publish the results on
The SEC's new stance came after an inquiry the by its Division of Enforcement into a post on July 3, 2012 by Netflix CEO Reed Hastings on his personal Facebook page stating that Netflix's monthly online viewing had exceeded one billion hours for the first time.
According to the SEC, Netflix did not report this information to investors through a press release or Form 8-K filing, and neither Hastings nor Netflix had previously used his Facebook page to announce company milestones. Also, the firm had never before alerted investors that Hastings' personal Facebook page might be used as a medium for communicating information about Netflix.
SEC guidance in 2008 had maintained that, for purposes of complying with Regulation FD, a company makes public disclosure when it distributes information "through a recognized channel of distribution."
In the case of Hastings' posting, the SEC's staff said that: "We do not wish to inhibit the content, form, or forum of any such disclosure, and we are mindful of placing additional compliance burdens on issuers. In fact, we encourage companies to seek out new forms of communication to better connect with shareholders. We also remind issuers that the analysis of whether Regulation FD was violated is always a facts-and-circumstances analysis based on the specific context presented."
The SEC's non-issue with Hastings has industry observers feeling optimistic about the future of social media by asset managers. "It's significant in that the SEC has spoken on how Reg FD intersects with social media," said Jay Baris, chairman of Morrison & Foerster's investment management practice. "Time will tell if they're on the right track but it is significant that they recognize the issue and taking steps to encourage innovation. The challenge is that technology changes every day and it's very difficult to anticipate every possible violation, but companies should welcome regulatory certainty that helps them avoid footfalls."
This is "an acknowledgement by the Securities and Exchange Commission that valuable information is currently being conveyed through social media, which is reaching a broader audience than can be reached through traditional outlets," said Rajib Chanda, a partner in the Washington, DC office of Ropes & Gray focusing on investment management and securities law.
However, fund firms will need to address who is in charge of their social media communications-and their Twitter, Facebook and other accounts.
"If the CEO leaves the firm, who owns that account and will investors understand that he/she is no longer posting updates on behalf of the company?" Chanda asked. "One key thing to do is make it clear who owns that account because you don't want to lose that account when an employee leaves."
In general, fund firms are figuring out their own way in the changing social media landscape and "have a good understanding of what to do in a highly regulated industry," Chanda contends.
Despite the SEC's recent embrace of social media for corporate communications, these channels will continue to serve as an auxiliary for information, rather than a main news channel, according to Jennifer Connelly, chief executive officer of JCPR.
"Just because an executive has a preference for Twitter, doesn't mean all investors do too. Using one channel to distribute key information-even when investors expect to see it there-could alienate large portions of a fund's intended audience," she cautioned.
Fund firms should figure out what channels are most appropriate for different kinds of news and announcements, and make sure all communications are working together across platforms to disseminate accurate information to all audiences, Connelly said.
Nonetheless, the SEC's recent guidance does mark a shift toward more avenues for communication with investors, advisors and other constituencies for funds. "The chief complaint we have heard from financial companies is that they are constantly bombarded with information about what they can't do to promote their brand or products, but are given few guidelines for what is within bounds,'' Connelly said. "The new regulations draw a clear line in the sand and for that many firms are thankful."
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