The Securities and Exchange Commission (SEC) regulates public companies and investment advisors to ensure that the public's best interests are being maintained. Many of the regulations deal with the disclosure of information to the public, requiring that it is transparent and fair to all investors. The rise of social media sites, such as Twitter and Facebook, offer up new challenges to these regulations. No longer is information a passive, one-way trip from company to investor. Rather, it is interactive and shared with many interested parties. The SEC continues to develop updated requirements and regulations that reflect the new information age.

SEE: The Banking System

Same Across the Board
The main tenet of public company disclosure is that information about the company's earnings and operations must be disseminated to all parties simultaneously. This regulation ensures that all potential investors can act based on the same information. When companies activate social media outlets, they must ensure that they are not violating that regulation by sharing information with only those using the platform.

Because of the interactivity, companies also need to ensure that investors, or third parties, don't have access to post incorrect or non-public information in social media that others may attribute to the company itself. For example, if a Facebook user posts on the wall of a public company that they heard the company was merging with another, other readers may interpret that as truth, rather than rumor. To avoid this, companies must either monitor their communications and respond officially to this type of posting, or remove the ability for others to post altogether.

SEE: How To Tell If A Company's In Trouble.

Trail
The challenges for investment advisors are even greater. Registered advisors must make certain that their communications with their clients and potential clients do not violate the client's privacy. Interactive communication via social media rather than face-to-face or through email can easily cross this line, or appear to. If, for example, an advisor answers a client's investing question on Twitter with an answer tailored to their financial situation, it may be viewed by the SEC as violating the privacy of the client. Investment advisors are also required to keep copies of correspondence with clients and this also applies to social media. Advisors who don't have procedures to capture this communication may fall afoul of the rules.

Hackers
An issue with social media that all companies face is the risk of being hacked. This is also a possibility on corporate websites, but social media exposes the company to new risks. Hacker organizations, such as Anonymous and LulzSec, target specific companies and take over the websites, Twitter feeds and Facebook pages. In January 2012, Anonymous claimed responsibility for taking over the website and Facebook fan page of Sony Pictures in an apparent retaliation for the company's support of the Stop Online Piracy Act. Both platforms were recovered quickly by Sony, but were vulnerable for a period of time. If the hackers wanted to, they could have pulled private information from private messages on Facebook, or could have posted damaging information on the company's wall.

The Bottom Line
Social media brings new security and communication vulnerabilities to all companies. Existing SEC regulations apply to all of a company's communications, including these platforms. The SEC recommends that all public companies and investment advisors review their policies and procedures to ensure that they are adequately monitoring their social media outlets. As more companies begin to use these outlets, the SEC will have to adapt their regulations to meet the new reality.

Related Articles
  1. Personal Finance

    What it Takes to Get a Green Card

    Grounds for getting a green card include having family members in the U.S., being a certain type of refugee or specialized worker, or winning a lottery.
  2. Stock Analysis

    3 Obscure Twitter Accounts Making Money Off of You (TWTR)

    Learn how Twitter accounts that share quotes or information, such as @HistoryInPics and @Notebook, make money from their audiences.
  3. Investing News

    ABC's Madoff Miniseries Explores His Charm, Smarm

    An ABC miniseries on Ponzi scheme king Bernie Madoff gets inside the head of a man who was, in fact, not too big to fail.
  4. Investing News

    Tufts Economists: TPP Will Reduce U.S. GDP

    According to economists at Tufts University, the TPP agreement will destroy half a million jobs in the U.S. by 2025.
  5. Career Education & Resources

    Laws & Regulations To Know Before Changing the Name of Your Business

    Discover some of the most important steps you need to take after making a decision to change your legally established business name.
  6. Investing News

    Clinton or Cruz: The President for Your Pocketbook

    Tuesday's Iowa caucuses kicked off presidential primary season and offered a couple of surprises.
  7. Personal Finance

    Passport Procrastinators: This Year, Renew Early!

    Millions of passports issued nearly 10 years ago when the Western Hemisphere Travel Initiative became law are expiring. Expect backlogs; leave extra time.
  8. Financial Advisor Technology

    Advisors: What to Know Before You Text

    Texting is becoming more popular between clients and financial professionals, but compliance can be tricky. Here's what to know before advisors text.
  9. Term

    Understanding Rule 144A

    Rule 144A is an SEC rule that changes the two-year holding period requirement on privately placed securities.
  10. Stock Analysis

    Will Twitter Finally Reward Investors In 2016?

    There are still few signs that Twitter is ready to turn the corner and reward new shareholders.
RELATED FAQS
  1. What is the Writ of Mandamus?

    A writ of mandamus is a court order issued by a judge at a petitioner’s request compelling someone to execute a duty he is ... Read Full Answer >>
  2. Are UTMA accounts escheatable?

    Like most financial assets held by institutions such as banks and investment firms, UTMA accounts can be escheated by state ... Read Full Answer >>
  3. What is the SEC's escheatment process?

    The U.S. Securities and Exchange Commission (SEC) does not have its own escheatment process. Rather, the SEC notes that the ... Read Full Answer >>
  4. Can the IRS audit you after a refund?

    The U.S. Internal Revenue Service (IRS) can audit tax returns even after it has issued a tax refund to a taxpayer. According ... Read Full Answer >>
  5. How does escheatment impact a company?

    In recent years, state governments have become increasingly aggressive in enforcing escheatment laws. As a result, many businesses ... Read Full Answer >>
  6. What happens if property is wrongfully escheated?

    If your financial accounts, such as bank, investment or savings accounts, are declared dormant and the managing financial ... Read Full Answer >>
Hot Definitions
  1. Presidential Election Cycle (Theory)

    A theory developed by Yale Hirsch that states that U.S. stock markets are weakest in the year following the election of a ...
  2. Super Bowl Indicator

    An indicator based on the belief that a Super Bowl win for a team from the old AFL (AFC division) foretells a decline in ...
  3. Flight To Quality

    The action of investors moving their capital away from riskier investments to the safest possible investment vehicles. This ...
  4. Discouraged Worker

    A person who is eligible for employment and is able to work, but is currently unemployed and has not attempted to find employment ...
  5. Ponzimonium

    After Bernard Madoff's $65 billion Ponzi scheme was revealed, many new (smaller-scale) Ponzi schemers became exposed. Ponzimonium ...
  6. Quarterly Earnings Report

    A quarterly filing made by public companies to report their performance. Included in earnings reports are items such as net ...
Trading Center