1. The Opening Bell: Disclosure Dilemma
January 10, 2013
by Gus Okwu
As the first full week of 2013, we want to take a closer look at an issue that ironically speaks to a need
for clearer guidance from the Securities and Exchange Commission (SEC); the Reg FD (also known as
Regulation Financial Disclosure). For those of you unaware of the rule, Reg FD was adopted by the SEC
in 2000 and was designed to prohibit the practice of “selective disclosure”. In prior years, it was
common for companies to provide material information to a select group of analysts and investors prior
to disclosing it publicly. In principle, Reg FD was intended to ensure that all investors have equal
access to market information at the same time.
With that as a backdrop, on December 5, Netflix Inc. and its CEO, Reed Hastings, both received Wells
Notices from the SEC regarding a Facebook post that Mr. Hastings made in July. (A Wells Notice is a
notification from the SEC that it intends to recommend enforcement action against a company or an
individual.) Mr. Hasting’s July Facebook post was essentially a congratulatory note to Netflix’s licensing
team for exceeding a milestone for monthly viewing hours. Mr. Hasting’s post also included a positive
prediction regarding the direction of the metric as shown in his post provided below. It’s important to
note that Netflix did not file a Form 8-K or issue a press release at the time of Mr. Hasting’s post. Of
equal importance is the fact that Mr. Hastings habitually posts company information on his Facebook
page. He is also widely regarded as one of corporate America’s most active users of social media with
over 200,000 subscribers to his Facebook account.

2. Netflix eventually filed an 8-K on December 5th after receiving the Wells Notice informing investors of
the SEC’s action. An exhibit to the company’s 8-K included a statement from Mr. Hastings expressing
his belief that the SEC’s application of Reg FD was wrong in this case.
A more recent case involves Elon Musk, CEO of Tesla Motors Inc., who, on December 10th, went on
Twitter to state that he was “…happy to report that Tesla was narrowly cash flow positive last week.
Continued improvement expected through year end.”
As Dan Primack of Fortune published, this was the first time that any news on Tesla reaching cash flow
positive had been disclosed, and it was not retweeted on Tesla’s official Twitter feed nor was it posted
on the company’s IR website or in any of its SEC filings around that date.
Five days later, Mr. Musk appeared on CNBC in support of Solar City’s IPO, where he sits as the
company’s Chairman. In response to a question as to whether he was concerned about being served
with a Wells Notice, as Mr. Hastings and Netflix experienced only a week and a half before, Mr. Musk
defended himself stating that his Tweet was not an example of selective disclosure. According to Mr.
Musk, who has 121,600 Twitter followers, the Tweet was one of several channels that were used in
addition to “follow up with investors”.
And here in lies the rub. There’s no denying the factors that compelled the SEC to implement Reg FD.
It was an attempt to level the playing field amongst all types of investors – big and small – though there
remain inherent advantages available to the larger investor. The primary issue that needs to be
revisited seems pretty apparent to most market observers. And that is one of obsolescence – the rules
as currently delineated are no longer relevant.
Reg FD was implemented in 2000, more than a decade ago. During that time, Internet users in the US
have grown from 121 million to 244 million users as of year-end 2011. The jump in Internet
usage corresponds with an increase in the use of social media for the distribution of political, business
and entertainment news. Many of us load up on our daily news fix through websites such as Twitter,
Facebook and LinkedIn as well as conventional news outlets such as Bloomberg, The New York Times,
CNBC and others. And with this shift in how we get our news, business leaders are adapting to these
trends and turning to the Internet as a primary vehicle for disseminating news, and opining on trends
and developments driving their industries.
But despite these monumental shifts in communication behavior since Reg FD was initially adopted, the
SEC has not found a reason to review the broad framework that dictates the manner in which the rule

3. is applied. That framework requires public companies to disclose material information to all investors
at the same time which has historically meant issuing a press release and filing a Form 8-K with the
SEC.
Hastings and Musk each have more than 100,000 followers on websites that could be regarded as viable
vehicles for delivering information to investors. However, as the Deal Professor, Steven Davidoff of The
New York Times recently wrote, this speaks to the SEC’s assertion that a website or blog could be
viewed as public for Reg FD purposes if it was a “recognized channel of distribution of information”.
(It’s worth noting that this update in guidance by the SEC was done in 2008 and represents the agency’s
most recent clarification of the rule.) Consequently, the primary criteria to be used in evaluating
public disclosure are based on where the disclosure was made, and whether investors recognize the
venue as a depositary for regularly released information.
One can only hope that the SEC identifies these two cases as an opportunity to revisit Reg FD and
revise it accordingly. If nothing is done, this could have a reverse effect as companies will simply
refuse to use social media for disclosure given the lack of clarity in SEC guidance. And reduced
corporate disclosure will result in less information flow which, in turn, will make it more difficult for
analysts to value companies. All this will lead to more volatility which is exactly what Reg FD was
initially created to prevent.
In the interim, it would be wise for all companies to follow some basic rules covering the activities of
senior management on social media:
 Ensure that any and all social media submissions by senior management are reviewed and signed-
off by the IRO/IR agency and senior counsel prior to posting.
 File a Form 8-K with the SEC that includes an exhibit containing senior management’s social media
post.
 Explain in a disclosure policy, posted on the company’s website, how Twitter and other social
media websites are used for disclosure.
 Provide a note in all press releases and SEC filings explaining how the company uses Twitter and
other social media websites for disclosure and provide the full URL(s) for the relevant accounts.
 Create prominent links to the company’s and senior management’s social media websites on the
IR website providing investors with immediate access to all postings.
 Create a separate Twitter account exclusively for corporate or investor information in order to
ensure that material information is easily viewed.
 Establish a pattern of using Twitter and other social media websites to disseminate company
disclosure information.

4. About the Opening Bell
Gus Okwu manages the International Financial Communications/IR group at Allison+Partners. Prior
to joining the firm, he spent more than 20 years working on Wall Street as a senior equity analyst
at Wachovia Securities covering telecoms, and as a senior debt analyst at Fitch Ratings and as a
banker. The Opening Bell’s team has accumulated decades of experience in investor relations,
financial communications, public relations, equity research, proxy work and journalism.
This column is meant to provide Allison+Partners’ clients and interested parties with a better sense
of the issues driving the capital markets and in particular, areas covering research, trading,
financial communications and investor relations. Through our weekly submissions, we hope to
provide you with a better sense of how to navigate through issues covering corporate and financial
disclosure, valuations and corporate governance – some areas to be emphasized more than others.
We aim on presenting ourselves as an independent source of news, analysis and commentary and
appreciate any opportunity to learn from others with deeper experience or insights on issues
raised. Consequently, we encourage feedback with respect to the content submitted. If you would
like to contact The Opening Bell with suggestions, comments or corrections, please email us at
gus@allisonpr.com.