Beware of tweets bearing tips.
Hundreds of publicly traded companies in B.C. and across the country have joined the social media bandwagon, setting up corporate Twitter accounts, posting YouTube videos and managing their own LinkedIn profiles and Facebook pages to engage with customers and investors.
But they're still required to provide their latest company news the old-fashioned way: via a press release.
That's not the case in the United States, where U.S.-listed companies can use social media to disclose key business information as long as they've told investors that they'd be disclosing that information through social media.
The move in the U.S. came after the Securities and Exchange Commission (SEC) examined whether Netflix's CEO Reed Hastings had violated disclosure rules with a July 3, 2012, post on his Facebook page that the company had streamed a billion hours of content in June 2012. The milestone announcement led to a jump in the company's share price as the information spread in the market, but the company did not use a press release or a regulatory filing to disseminate the information even after Hastings' post.
Carl Icahn is one of the most prominent activist investors to embrace social media. He has been on Twitter for less than three months, but his tweets have already moved markets. For example, when Icahn tweeted on August 13 that he had taken a large position in Apple (AAPL:Nasdaq), its stock jumped 5%.
Peter Brady, director of corporate finance at the BC Securities Commission (BCSC), told Business in Vancouver that Canadian rules governing how information that could affect a company's share price (material information) is disclosed haven't been changed for decades.
The national policy on disclosure standards (NP 51-201), the content of which is at least a decade old, continues to state that Internet use by investors is "not yet sufficiently widespread."
"[The policy] doesn't address social media because those things didn't exist," Brady said. "But it says be cautious. It's a policy that says the tried-and-true method is a press release."
Since 2008, the SEC has provided guidance saying websites of U.S. publicly traded companies can be used as a primary disclosure medium, based on a rule called Regulation FD. The SEC guidance in April was meant to broaden the disclosure guidance to include and allow social media, as long as it was widely disclosed as a key source of material information.
"In the U.S., certain [large] companies like Google … don't even put out a press release anymore," said Caroline Clapham, a Vancouver associate at Blake, Cassels and Graydon LLP. "They just post news to their website, file it in EDGAR [the SEC's corporate filings database], and that's sufficient in the U.S. because they have Regulation FD. Investors know when there's news about Google, they're going to post it on their website."
She said Canada doesn't have the same disclosure flexibility yet because its market is so much smaller.
"I think the regulators are trying to protect the public by ensuring that information is as widely disseminated as possible, and a website, which may get a couple of hundred hits a day, is not the same thing as sending out a news release on the wires that gets posted on Yahoo Finance and all these different sites."
Brady said the dated disclosure policy doesn't prevent companies from using their corporate websites or social media to disseminate company information. But companies need to be careful to avoid violating Canada's stock-tipping rules by disclosing any new information without a press release. Brady didn't say whether any public companies have been disciplined for inappropriate use of social media, but Clapham said she was aware of at least half a dozen cases over the past year and a half "where the regulators have stepped in to ask for clarification or ask for a tweet or post [to] be removed or clarified."
Most have come from junior mining companies on the TSX Venture Exchange. The most serious case involved a Vancouver junior mining company that was forced to close its corporate twitter account because the language being used by the person sending out the tweets was promotional to the point of being misleading.
"Every couple of tweets was about why you should invest in this company, and the company didn't have any material news for months," Clapham said. "My understanding from discussions with people in the know on this one is that management didn't know what was being posted on the Twitter page. It had been farmed out to a third party social media provider who told management they knew what they were doing but didn't."
Planning is paramount for public companies using social media
Public companies looking to use social media as an investor relations tool should have a clear strategy and plan in place before issuing their first tweet or liking their first Facebook post.
Caroline Clapham, a Vancouver associate at Blake Cassels and Graydon LLP, said the strategy and an educational program for employees are important because the company and its officers and directors are ultimately responsible for everything that gets distributed to the public.
Companies thinking about posting only positive news about their company or industry, for example, risk drawing the ire of regulators for being too promotional, or worse, misleading.
"You can't just willy-nilly get into social media and start posting things," she said, "because the regulators will look at the account on a global basis, all of your tweets, all of your posts, combined."
Canadian directors and officers should also be mindful of even sharing information about where they are.
"Do not location-enable your tweets. Do not use FourSquare," Clapham said. "Investors could speculate about anything. If someone is posting pictures from some location or checking in to some location, you could speculate a transaction is going to occur or they're looking at a property."
Clapham added that companies need to be careful about what third-party information they share and to ensure that everything in an external report or story is accurate. And everything that gets tweeted or posted on a Facebook wall or LinkedIn page should link to appropriate legal disclosures.
"Regulators take the view that they are liable for whatever is posted."
