A recent enforcement action brought by the Securities and Exchange Commission (“SEC”) offers an important reminder for public companies, as well as their officers, directors and employees, to use caution if disclosing sensitive information about the public company via social media. On September 26, 2024, the SEC announced settlement of an enforcement action against a sports betting and online gaming company for selectively disclosing material non-public information (“MNPI”) through the social media accounts of the company’s CEO, in violation of Regulation Fair Disclosure (“Regulation FD”).
On July 27, 2023, content was uploaded to the CEO’s social media accounts disclosing that the company continued to see “really strong growth” in states where it was already operating. At the time of the posts, the company had not yet publicly disclosed this information. These posts were removed shortly after publication at the request of the company. However, the company did not itself disclose the information included in the social media posts until seven days later when it published its earnings release for Q2 2023.
Regulation FD prohibits a public company or a person acting on behalf of a public company from selectively disclosing MNPI to holders of the company’s securities under circumstances in which it is reasonably foreseeable that such holders will trade on the basis of such information, subject to certain exceptions. In its guidance from 2013, the SEC made clear that dissemination of information through social media (without more) does not constitute broad dissemination of this information. Pursuant to that guidance, companies may disclose MNPI through social media channels only if sufficient steps were taken to alert investors and the market that such social medial channels will be used for the dissemination of MNPI. Methods of appropriate notice could be references to such social media channels in their periodic reports or press releases. In bringing this particular enforcement action, the SEC viewed publication of the statement on strong growth on the CEO’s social media accounts as selective disclosure of MNPI where the company had not previously informed investors that it would disclose MNPI through the CEO’s social media accounts. Under Regulation FD, if a company unintentionally selectively discloses MNPI, it should remediate the violation by broadly disseminating the information “promptly.” For purposes of Regulation FD, promptly means “as soon as reasonably practicable (but in no event after the later of 24 hours or the commencement of the next day's trading on the New York Stock Exchange) after a senior official of the issuer… learns that there has been a non-intentional disclosure by the issuer or person acting on behalf of the issuer of information that the senior official knows, or is reckless in not knowing, is both material and nonpublic.”
Regulation FD remains a focus of the SEC’s enforcement efforts. Public companies and their executives should remain vigilant about their compliance practices for use of social media. If companies and/or their executives plan to use social media channels to disclose information about the company, they should adequately inform the market that they plan to do so in order to avoid potential claims of selective disclosure when using these communication channels. Additionally, companies may want to consider providing periodic training to directors, executives and other employees on Regulation FD and use of social media.
