The SEC Nods at Social Media: What Does This Mean?

The SEC in the U.S. has updated its guidance relating to public companies and their use of corporate websites for investor disclosure. Quite significantly, we think, they have recognized Social Media in the context of Social Networks and how groups of investors can discuss information and the impact on a company stock. The last time any such Internet related guidance was issued was 2000. Even the SEC acknowledges things have changed. Quite a lot. Oddly enough however, the new rules will not be posted on the Web until the print version has appeared in the Federal Register.

Some of the interesting points:

Sarbanes Oxley: Although as yet unclear, the SEC is saying that information posted on a website does not necessarily fall under Sarbanes Oxley rules. There is no direct translation of this in terms of Social Networks; as in do conversations need to be kept on file internally? If so,  data storage companies will be a good investment. We think this regulation needs some further clarification that may come out when it is printed and then on the Web.

Participation: The rules now cover anti-fraud and direct participation by a company or company person presenting information in a blog or other form of Social Media (presumably this covers vlogging and microblogging.) One wonders; will a “comment” or blog entry by a company representative be followed by three long legal paragraphs about disclosure warnings and statements of speculation?

The How: The rules will apparently clarify “how” information posted on a website will be considered public. This may impact Content Management Systems and controls for corporate blogs. This may also impact the “who” for who posts information to the Web.

These new rules essentially say “Social Media is here to stay and we have to figure out how public companies can play here.” Such significant changes in SEC rules are most often driven by incidences resulting from cases where the issue in question has resulted in fines or other legal actions and inquiries. Anyone know of any significant legal cases around Social Media and public companies?

Canada has a very fragmented regulatory system, so likely any changes in Canadian practices will come from Ontari’s OSC and be adopted in various forms by other Provinces. Changes however, will undoubtedly come to Canada. Such regulations are important to protect investors and we think this is a good move by the SEC; what do you think? Will the rules let companies be more open or will they become more “closed”?