This is the twentieth in a series of brief articles that Moye White is sending to its clients and friends to provide practical insight about the opportunities and challenges presented by today's economy.
Many companies are experimenting with new forms of online social media to find new ways to connect with customers. Websites, blogs, bulletin boards, chat rooms, Twitter, Facebook and other social media can provide useful and timely information to customers and shareholders, but can also raise a host of legal issues. The informal nature of these social media platforms allows companies to provide quick snippets of information or offthe-cuff comments that may not have been carefully drafted and reviewed. As a result, your company may have to deal with posts that are poorly written, incomplete or unclear. Worse yet, you may deal with posts that raise fraud concerns. Public companies should be aware that all information disclosed through any of these forms of social media is subject to Regulation FD guidelines.
For example, your CFO sends the following tweet in advance of the release of quarterly financial results:
Q2 profits will be awesome! Sales thru the roof.
If you are a public company, this tweet could violate Regulation FD unless a simultaneous public release of this information is made. Further, if second quarter profits or sales are not as robust as suggested, or if the tweet is misleading because of its incomplete nature, the tweet could raise anti-fraud concerns.
Public companies should be aware that effective August 2008, the SEC adopted rules supporting the use of company websites in conjunction with Regulation FD compliance. The rules recognize that in some circumstances, disclosures on company websites, shareholder forums, or blogs can constitute public disclosure for purposes of Regulation FD. The SEC notes however, that the antifraud rules continue to apply to blogs and shareholder forums and that companies cannot require the waiver of protections under the securities laws as a condition to participating in a blog or forum.
Best Practices for Companies Using Social Media:
- Develop an internal procedure for reviewing and verifying the information in blogs, websites, or other postings before the information is posted. Limit the number of employees who are authorized to create postings.
- Develop internal policies about appropriate types of information to be included. For instance, comments about competitors or former employees may raise defamation concerns. Comments disclosing proprietary information may result in a loss of trade secrets, violation of confidentiality agreements, or the loss of competitive information. Disclosures about customers, their medical information, financial information or other personal nonpublic information may violate state or federal privacy laws or company privacy policies. The most appropriate topics for posting may be generic information about products (blue widgets now available), promotions (Memorial Day sale extended through June 1), or other factual information (Westminster store now open).
- Periodically review third party internet sources to see what others are saying about your company. Develop procedures for determining when to respond to inaccurate or negative information.
- Develop policies concerning the use of third party boards, blogs, tweets, and other social media by employees. In general, employees and other insiders should be prohibited from posting about the Company on any third party media unless specifically authorized by the Company.
- Publicly traded companies should ensure that their posting policies are Regulation FD compliant. In particular, public companies should avoid informal comments and disclosures related to their financial condition or other material information unless the comments are carefully reviewed and simultaneously made publicly available.
- Consult with counsel about appropriate legal disclaimers.
For more information contact: Jackie Benson, David Roos or Ted White, Chair, Transaction Section at (303) 292-2900.
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Moye White LLP has prepared this bulletin to provide general information; however this bulletin does not provide legal advice and does not create an attorney-client relationship between the reader and Moye White. No legal or business decision should be based solely on the content of this bulletin.