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SEC recognizes new way to communicate with investors

Residents of Virginia may have heard that the Securities and Exchange Commission, or SEC, has established new guidelines for disclosure of business information via social media. The SEC now recognizes social media sites such as Facebook and Twitter as legitimate channels of communication. The SEC views social media sites the same way as it does corporate websites or the SEC's own Edgar site. The new rules state that corporations must make clear which social media sites will serve as official channels of disclosure. This will impact not only large corporations such as Netflix but also those involved in corporate formation, limited liability companies and business start-ups.

The new disclosure rules follow a notable incident in December of 2012. Reed Hastings, the chief executive of Netflix, used his personal Facebook account to congratulate Netflix employees for more than 1 billion hours of video viewing by customers in a single month. The SEC considered this information material to investors who would not have access to the news unless they had Facebook accounts and subscribed to Mr. Hastings' posts.

The SEC did not fine or otherwise sanction Mr. Hastings or Netflix. The agency did issue an opinion that the Facebook posting may have violated Regulation Fair Disclosure, or Reg FD, since the information was not revealed in securities filings or any news release.

The Hastings case serves as an example of intention not meeting compliance. Mr. Hastings may not have been trying to hide anything from investors or favor one class of investor over another, but he came close to noncompliance. In Virginia, attorneys may help clarify old and new compliance laws and regulations.

Source: New York Times DealBook, "S.E.C. Sets Rules for Disclosures Using Social Media," Michael J. de la Merced, April 2, 2013

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