Life got a little bit harder for investors this week. And believe it or not, the SEC is to blame.
Aiming to accommodate corporate “social networking” efforts, the SEC on Tuesday gave companies permission to announce major corporate news on social-networking sites such as Facebook and Twitter — rather than through online searchable press releases or filings on the SEC’s own website, as had previously been the typical practice.
A bit of background
On July 1, 2012, Netflix, Inc. (NASDAQ:NFLX) CEO Reed Hastings went on Facebook Inc (NASDAQ:FB) to crow over the momentous news that his company had just finished sending out 1 billion viewing hours to Netflix, Inc. (NASDAQ:NFLX) streaming subscribers in June. Five months later, fellow tech entrepreneur Elon Musk — CEO of electric-car company Tesla Motors Inc (NASDAQ:TSLA) — followed in Hastings’ footsteps by going on Twitter to announce that for one week in December, his company was cash-flow positive. (A whole week, eh. Congratulations?)
What these two events have in common is that they both seemed to run afoul of Securities and Exchange Commission regulation FD. Reg FD, as it’s commonly called, mandates that whenever a company releases information that’s “material” to its business, it must do so in a manner that’s “broad” and “non-exclusionary.”
This language was drafted to curb the practice of companies revealing useful data only to their favorite investment-banking analysts — a club that’s certainly not broad — and not letting the rest of us investors know what was up until after the favored few had heard it, which is without a doubt “exclusionary.”
Now here’s the problem. Over the dozen years since Reg FD came into effect, companies have followed the law carefully, releasing information in ways and in places where people were likely to find it. Generally speaking, material announcements came out as press releases that showed up promptly in the companies’ ticker feeds on Yahoo! Inc. (NASDAQ:YHOO) Finance. They were also usually filed as 8-K filings with the SEC.
As a result, anybody who wanted to know what was going on knew how to find out. There were basically just two websites to check: Yahoo! Inc. (NASDAQ:YHOO)’s and the SEC’s.
Life just got complicated
I tell you this as a preface to explaining why I, for one, am not thrilled with the SEC’s decision to let companies disclose material information on their Facebook Inc (NASDAQ:FB) pages.
Why not? Listen — it was bad enough when the SEC gave the greenlight in 2008 to companies like Google Inc (NASDAQ:GOOG) who wanted to stop paying publication fees to PRNewswire and start self-publishing their most interesting announcements on their corporate websites. Ever since, more and more companies have been taking the SEC up on its offer, leaving investors with many places to look for corporate news updates, rather than just two.