CEO's Tweets Raise Reg FD Questions

In 140 characters or less, Alan Meckler, CEO and chairman of WebMediaBrands, regularly announces to the world the company's new product developments and hints at the outlook for quarterly earnings. But his Twitter communications are raising questions about whether using social media to reveal material information runs afoul of Regulation Fair Disclosure rules.   

Meckler defends Twitter as the best way to reach a broad audience quickly. “It is a great tool for public relations,” he says. “If I think there is something of interest, I tweet about it.” 

Tempting as tweeting may be, legal experts warn that companies must first clear the hurdles of Reg FD before using social media channels to connect with their customers, investors, and others. “The biggest question in using platforms like Twitter is, can you do it in a way that does not violate any provisions under Reg FD?” says Penny Somer-Greif, associate at law firm Ober Kaler.

Reg FD, adopted in August of 2000, prohibits publicly traded companies or those speaking on their behalf from disclosing material information to a select audience. If information is released accidentally, a filing must be made immediately to disseminate the information to the public. Generally, companies have issued a press release over wire services such as BusinessWire or PR Newswire, which they also post to their Websites, to satisfy this requirement.

A Pew Research study conducted in June found that 13 percent of adults in the U.S. use Twitter, although it didn't say how regularly they use it. The question, then, is whether Twitter, with its estimated worldwide audience of 200 million, is a broad enough medium to consider information sent on it to be disseminated to a general audience. The answer depends on who you ask.

In an interpretive guidance update to Reg FD issued in 2008, the Securities and Exchange Commission staff clarified that for companies to comply with Reg FD when using different channels of communications, those channels must be publicly known, and information must be disseminated to reach the public instead of only selective groups. Companies must also be able to answer definitively that information provided on recognized channels satisfies the waiting period for investors and the market to react to the posted information.

The release specified that, “for some companies in certain circumstances, posting of the information on the company's Website, in and of itself, may be a sufficient method of public disclosure under Rule 101(e) of Regulation FD.” The SEC staff had made it clear that the approved guidance made a conscious effort to be much more principles-based and avoided bright line tests so that the guidance would be flexible enough to accommodate future advances in technology.

That last part was a useful thought to add, since Twitter barely existed in 2008. Since then it has exploded, and now Meckler's tweets reach more than 2,600 followers (you can find him at @AlanMeckler), with potential to reach a wider audience should any of his followers decide to re-tweet his notes. He claims that most of his tweets are about things that interest him, such as recent travel and music, but he also writes about new events, products, or services offered by his company and subsidiaries.

Some of the CEO's tweets from last year prompted SEC staff to send review letters to the company. The tweets in question hinted at his company's pending acquisitions, Meckler's purchase of company's stock to reflect his confidence in the business, and posts making references to the next quarter results prior to any formal announcements made by the company.

Ten days after the company replied to the SEC review, it received an answer from the SEC, stating that the Commission had completed the filing review and had no further comments.

“The biggest question in using platforms like Twitter is, can you do it in a way that does not violate any provisions under Reg FD?”

—Penny Somer-Greif,

Associate,

Ober Kaler

Although he refuses to discuss the SEC review, Meckler says he does not intend to disclose information to specific groups. “I am not specifically targeting investors or shareholders. You don't even know who is reading your tweets.” Most of his tweets, he adds, do not get any response.

Meckler also says that in his opinion he never disclosed material information on Twitter, nor does he try to influence those who are reading his page to purchase the company's stock. “I never say ‘buy our stock,' but if I say revenue increased significantly, someone may decide to buy,” he says.

Over the Line?

Lawyers are divided over whether Meckler's tweets might violate Reg FD. Those who say it may argue that some of his tweets clearly indicated disclosure of material information. “Not making a recommendation to buy your stock is totally irrelevant. When you say, ‘We did great this quarter,' that is already considered material information because it can potentially influence investors or shareholders to buy the stock,” Somer-Greif says.

An important question is whether Twitter qualifies as a recognized communication channel for the company, says Lilian Tsu, a partner at law firm Hogan Lovells. “The SEC has consistently said, ‘Our rules still apply even with changes in technology.' If you are going to use Twitter, you also have to ensure that people know that is a recognized channel of communication for your company,” she says.

TWITTER USE

The following chart from the Pew Research Center shows who's using Twitter.

Source: Pew Research Center Study on Twitter.

But, she says, considering the Internet-centric business that WebMediaBrands is in, the SEC may recognize the use of new social media technology as an acceptable communication tool for the company. “In [Meckler's] favor is that his company is an Internet-based business. The cutting edge communication channel is in line with his business,” she says.

Amy Greer, a partner at law firm Reed Smith, sees no fault in Meckler's Twitter activities. She says Reg FD only precludes selective disclosure of information to a limited audience, while Twitter is accessible by the general public. “Broadly disseminating information to the public is arguably in compliance with FD,” she says.

Additionally, she says Meckler's Twitter page is prominently linked to the company's Website.  Given the prominence of the link to Meckler's Twitter page, it is not difficult for investors to find information on what the CEO says about the company through his tweets.  “The definition of what is a recognized channel is subject to change as technology evolves overtime,” she says.

Greer concludes that based on the 2008 guidance, companies can indeed comply with Reg FD while using Twitter. “We may see additional guidance from the SEC as technology continues to change,” she says.

Still, she says executives considering using Twitter should evaluate carefully all the regulations governing their industries before embracing the new technology.