Investment Banking: Social Media and EDGAR - dummies

Investment Banking: Social Media and EDGAR

By Matt Krantz, Robert R. Johnson

For decades, EDGAR has been the official source of company information for investors and investment bankers. Investors have long learned that if they want to get information, and be completely sure it’s official and accurate, EDGAR is the source. In fact, many of the professional tools investment bankers use pull in data from EDGAR.

But rapid changes in the way investors get information about companies are starting to take hold. In April 2013, the SEC gave companies the green light to start using social media sites like Facebook and Twitter to share and disseminate information to investors. The SEC says it’s okay as long as the companies inform investors that they plan to use social media to share information ahead of actually doing so.

The SEC’s acceptance of social media is a significant development. The shift prompts investors to broaden their tech skills to make sure they don’t miss anything. Investors must take a close look at the official regulatory documents, including 8-Ks, 10-Ks, and 10-Qs, and see if companies disclose their plans to share information on Facebook and Twitter. If they do, investors will need to sign up to follow the companies.

The SEC’s change arose from a query into a Facebook post made by Reed Hastings, CEO of online video site Netflix. Hastings told his Facebook followers that the company was hitting a milestone in the number of hours being watched on the service.

The SEC didn’t find any wrongdoing, but it used the event as a teaching moment. Netflix subsequently told investors it may issue material information on five different social media venues, including the Netflix blog, the Netflix Tech blog, the Netflix Facebook page, the Netflix Twitter feed, and Hastings’s public Facebook page.

So far, most companies are taking a wait-and-see attitude toward social media. Most of the companies that are using social media are simply posting links to their EDGAR filings or press releases.

When dealing with investment information, be extremely careful about the source. In this age of instant information, faulty information can get disseminated quickly and spread rapidly. An infamous example of bad information spreading quickly came in August 2000 when a 23-year-old student from El Camino Community College concocted a fake press release about technology company Emulex.

The press release falsely stated that the company’s accounting was being investigated by the SEC. That fake press release hit an online press release dissemination service at 10:13 a.m. Eastern time, and shortly after, a news service reported on it. In just 16 minutes, 2.3 million shares of Emulex traded hands, and the stock price plummeted and destroyed $2.2 million in market value.