The securities laws of the U.S. (the rules governing the functioning of the stock markets and the issuance of corporate stock and debt instruments) are predicated on accessibility to the general public of information that would inform a decision as to whether to buy or sell an interest in a given enterprise. It has recently been in the news that members of Congress are currently permitted to make investment trades in a way that is clearly violative of these ideals and essentially constitutes legalized insider trading (making investment decisions about a company on the basis of information gained from personal relationships within that company or access to its confidential information). The Congressional situation has raised so much ire that significant legislative changes are likely to soon be made.
Another topic receiving legislative attention in this arena is the interaction of social media and securities regulation. Again, returning to the desired baseline of equal public access to material investment information, let’s look at a few of the salient issues.
While social media constitutes an increasing portion of companies’ general communication (and the public’s, of course), it hasn’t supplanted ordinary press releases, TV and radio appearances, interviews with print journalists from financial media, etc. The securities laws thus currently prohibit, for example, a CEO’s use of Twitter to deliver information that needs to be disclosed to the investing public (unless after the information has already been disseminated in a more public way, with tremendous emphasis on “after”). My post referencing the problems experienced by Groupon in its IPO because of reckless Tweeting highlighted the most notable example of late.
These examples concern an executive officer who should know all of the relevant information and how to disclose it. What happens, however, if the person who is responsible for the company’s Facebook posts is someone in the marketing department or perhaps even a summer intern? A momentous post from that company about major investment news is an absolute minefield from an investor relations compliance perspective. Even if instructions about that release are coming from senior management, simply the way the event is hyped and spun by the eventual distributor can put a business into fraud-and-misrepresentation territory in an instant. We could now extend the discussion to unofficial social media posts about a company randomly issued of a given employee’s volition, but suffice it to say that situation only amplifies and broadens the concerns already raised above if those posts are potentially material to any investment.
We are at a place where a CNBC broadcast of noteworthy company activity revealed by its leader may suffice as adequate public distribution when followed by Internet syndication by reputable sources. The uneasy fit right now between social media and securities law, however, is perhaps best summarized as follows: it’s awfully hard to say something meaningful to investors AND include your “forward-looking statements” and “past results do not guarantee future performance” disclaimers in an aggregate of 140 characters!