April 05, 2013

Now that the SEC is recognizing the legitimacy of social media sites as an official communications channel, companies will be able to use blogging and posts on Facebook and Twitter to communicate more freely with the public.

However, will this become a burden for investors and traders? On an video interview with Tom Keene of Bloomberg Surveillance, Michelle Leder of Footnoted.com, an information service that probes SEC filings, points out that companies often look to dump information on the market after 4:00 pm on a Friday, while the SEC is only open to 5:30 pm. Twitter is open all the time, she notes.

“I can understand how CEOs want to get out there, but it also raises concerns about how many of their investors are out on Twitter,” said Leder.

However, it’s very possible that companies are going to use their corporate accounts to disseminate official press releases that have been vetted by their compliance departments. Instead of being spontaneous on Twitter, they may limit their posts to official corporate accounts that file information with the SEC at the same time, wrote the New York Times on Wednesday.

“The whole notion of using Twitter as a disclosure mechanism is crazy,” Daniel Alpert of Westwood Capital told Bloomberg Surveillance. “What would you do if you didn’t want someone to read news? You would put it up at 2am New York time,” he said. “The US is not up yet, Japan is not up yet and no one is watching,” he said.

The reason the SEC clarified its policy on social media had to do with Netflix’s CEO Reed Hastings posting a 43-word message on his personal Facebook feed. Hastings congratulated his team for surpassing one billion hours of video watched in a single month. That snippet of information triggered an investigation by the SEC into whether the company violated Regulations Fair Disclosure, known as Reg FD, which requires a company to distribute material information to everyone at the same time. But the information was not disclosed in an SEC filing or press release. Even so, Netflix maintained that the message was immaterial and noted that it was picked up media outlets. What does this say about Reg Financial Disclosure – known as Reg FD— landmark legislation to makes sure that that corporations cannot release selective information?” asked Keene. “If every CEO is doing selective tweets, then everybody is not getting it at the same time,” added Keene This puts the onus on the investor, institutional or individual to make sure they are keeping up with the CEO’s tweet feed,” says Leder of Footnotes, who admits, “That’s a difficult thing to do.”

Leder, whose company searches for “ugly” information in SEC filings said Footnoted uses social media sites to look for information that companies bury.

To a certain extent, the onus will be on the public to make sure they are monitoring various social media channels to find out what companies are announcing. “It puts the onus on the investor – individual or institutional – to make sure they are keeping up with the CEO’s tweet feed,” said Leder.

The tricky thing is that corporations will have to make clear which Facebook pages or Twitter feeds they use for information dissemination. In its own blog, Footnoted.com wrote that within hours of the SEC’s decision, Delta Air Lines included information about its twitter feed and Facebook pages at the bottom of a press release on its March traffic, which it didn’t do before. On Wednesday, Mike Jackson, CEO of AutoNation sent five tweets with details about sales figures that were announced in a press release on that day. According to Footnoted’s blog, Jackson used to tweet about basketball, but the subject matter rapidly changed to sales figures.

Ivy is Editor-at-Large for Advanced Trading and Wall Street & Technology. Ivy is responsible for writing in-depth feature articles, daily blogs and news articles with a focus on automated trading in ...