On September 26, 2024, the Securities and Exchange Commission (“SEC” or “the Commission”) charged a sports-betting company (the “Company”) with violating Regulation Fair Disclosure (“Reg FD”) by disclosing material, nonpublic information to investors via posts to the Company’s CEO’s social media accounts without simultaneously disclosing that same information to all investors via a press release or Form 8-K. The Company agreed to pay a $200,000 civil penalty to settle the SEC’s charges without admitting or denying the allegations.
The posts at issue were made on July 27, 2023, during the Company’s quiet period in advance of filing its quarterly report for the second quarter. On that date, after the close of the Company’s fiscal second quarter but before the Company had filed its quarterly report on Form 10-Q, the Company’s public relations firm published a post on the personal X account of the Company’s CEO stating: “There’s massive potential for growth in new markets—but we’re still seeing really strong growth in existing states. Our 2018 – 2019 state vintage grew over 80% on the revenue basis year-over-year in Q1. With those numbers, we expect robust growth even without new states opening.” A similar post was also published on the CEO’s personal LinkedIn account. According to the SEC, although the posts were made by the Company’s public relations firm, the content of the posts had been reviewed and approved by Company staff, and the information contained therein (specifically, that as of July 27, 2023, the Company was “still seeing really strong growth in existing states”) was nonpublic, as the Company had not yet reported on continuing growth for the second quarter.
According to the SEC’s order, within 30 minutes after the posts going live, the Company’s communications staff realized the information should not have been publicized and instructed the public relations firm to remove the posts, which the public relations firm promptly did. Aside from deleting the posts, however, the Company allegedly did not take further steps. Specifically, according to the SEC, the Company did not make a prompt broader public disclosure by releasing to the general public the same information that had been contained in the social media posts. Instead, the first disclosure the Company allegedly made to the general public, including investors who did not follow the CEO’s X or LinkedIn accounts, was on August 3, 2023, when it publicly released its financial earnings for the quarter ended June 30, 2023.
This action highlights the risks presented by social media posts but also steps companies can take to mitigate those risks.
First, if a company plans to use social media to disclose material information, it should make sure that its investors are aware of these channels of communication so that they can monitor the relevant social media accounts for information. A company should inform investors of these alternative channels of communication in a Form 8-K, and once it has done so, it should actually use these channels to communicate to investors.
Second, companies should be particularly attuned to the timing of social media posts in relation to earnings statements. For instance, if a company wants to reiterate previously issued statements, whether in a social media post, during an investor meeting or any other non-FD compliant method, it must consider whether the statements could be viewed as conveying new material information—even if simply conveying that previously announced information remains accurate as of a different date.
Third, in the event that an unintentional selective disclosure is made, via a social media post or otherwise, companies must recognize that simply deleting the post or other disclosure will generally not be enough to cure the violation in the eyes of the SEC. In such situations, a company should quickly issue a press release or a Form 8-K, ideally on the same day (or at the most, within 24 hours) as the non-intentional disclosure.
Finally, as the use of social media and outside public relations firms to communicate with stakeholders becomes more prevalent, public companies must ensure that their disclosure controls processes include a rigorous review of social media posts and that all necessary internal approvals are obtained before posts are published.
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